World stocks slip as G20, Fed loom

Leaders of the Group of 20 meet on Thursday and Friday in Pittsburgh and U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis.

World stocks have risen over 26 percent this year, recouping more than half of last year's losses, underpinned by repeated pledges by G20 leaders and finance chiefs to keep emergency support for the economy in place.

We are still quite bullish, said Nick Nelson, European equity strategist at UBS.

The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low, valuations aren't expensive. MSCI world equity index fell 0.5 percent, while the FTSEurofirst 300 index <.FTEU3> lost 0.6 percent.

Emerging stocks <.MSCIEF> dropped more than 0.5 percent.

STIMULUS

The Fed on Wednesday is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent, and investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and hiring.

While any signal that the Fed might start unwinding its loose monetary policy shows the central bank is acknowledging the recovery, it could be negative for risky assets as it could fan speculation of an interest rate hike.

The Fed has pledged to buy up to $1.45 trillion of mortgage-backed securities and debt issued by government sponsored Fannie Mae and Freddie Mac by end-2009.

U.S. crude oil lost more than 1 percent to $71.25 a barrel after Asia's No.1 refiner Sinopec that diesel China continued to lag economic recovery with fuel sales so far this year still below the rates seen a year ago.

The September bund future fell 15 ticks.

The dollar <.DXY> rose 0.5 percent against a basket of major currencies, after hitting a one-year low last week.

We could see some consolidation after the recent fall in the U.S. dollar, said Patrick Bennett, Asian FX and rates strategist at Societe Generale in Hong Kong.

But this is unlikely to lead to a reversal in the broad weakness we have seen in the U.S. dollar as this is a liquidity driven rally and investors are taking on more risks.

Sterling fell to a five-month low of 90.79 pence per euro after the Bank of England said the British currency's long-run sustainable exchange rate may have fallen due to an increased focus on Britain's economic imbalances following the global credit crisis.

(Additional reporting by Dominic Lau; editing by Patrick Graham)