World stocks slipped from the previous day's 11-month high on Thursday as falling oil prices and caution ahead of the Group of 20 summit prompted investors to cut back on risky assets.

Sterling fell sharply, hitting a five-month low against the euro, after Bank of England governor Mervyn King said the weaker pound is helping a necessary rebalancing of the UK economy toward exports.

The Federal Reserve left interest rates on Wednesday as expected and promised to hold interest rates very low for a long time after leaving them close to zero percent as expected, which supported government bonds across the board in Europe.

However, concerns that the Fed may be closer to pulling back on their super loose monetary policy weighed on Wall Street.

The timing for exit strategy -- or plans to unwind emergency economic support -- is a key issue for investors as the two-day G20 summit in Pittsburgh starts on Thursday. G20 leaders are seeking ways to nurture the recovery from the recession and build safeguards against future catastrophes.

Crude oil prices fell below $69 a barrel, adding to a nearly four percent drop on Wednesday, after data showing an unexpectedly high build up in U.S. oil and products stockpiles raised concerns oil prices may have risen too fast.

Thursday's decline in world stocks follows a near 27 percent rise since January in the benchmark MSCI world equity index, recouping more than half of last year's losses.

Lately people have been buying (equities) for the wrong reasons, and at the same time, a large number of people have been expecting a pull-back... I think a pull-back of 5-6 percent would be healthy, said Michael O'Sullivan, head of UK research at Credit Suisse Private Banking. The MSCI world index fell 0.2 percent while the FTSEurofirst 300 index fell 0.8 percent.

U.S. stock futures were steady, pointing to a steady open on Wall Street. Emerging stocks fell 0.6 percent.


The UK currency fell as low as 91.36 pence per euro, its weakest since April, and was down 1 percent at $1.6178.

Clearly (BoE's) King has no objections to further sterling depreciation despite seeing a stubborn CPI. Today he admitted it will be necessary with a weak pound in order to rebalance the UK economy and this increasingly looks like a clear BoE target, SEB said in a note to clients.

SEB said it closed its long sterling trade with a loss of 2.8 percent.

The Fed's promise to keep interest rates low weighed on the dollar, with the U.S. currency falling 0.9 percent to 90.66 yen.

The euro rose 0.4 percent to $1.4774 with the closely-watched Ifo survey showed German business sentiment hitting its highest level in a year. However, the data fell short of expectations for a bigger rise.

In the bond markets, the euro zone's benchmark September bund future rose 27 ticks.

(Additional reporting by Simon Falush; Editing by Ron Askew)