GLOBAL MARKETS-Stocks rally peters out as trade, Fed worries dominate
* World stocks fall after four-day rally
* Italy leads Europe down as banks slide
* Crude slides as waivers dilute Iran sanctions
* Investors cautious before U.S. midterms
* Sterling jumps on Brexit deal hopes
By Helen Reid
LONDON, Nov 5 (Reuters) - World stocks slipped on Monday,halting a four-day recovery rally as anxiety surrounding globaltrade conditions and rising U.S. interest rates dampened riskappetite.
European shares followed Asia lower as investors readied forU.S. congressional midterm elections on Tuesday, while sterlingbriefly climbed on a newspaper report that a Brexit agreementwas imminent.
Oil prices fell as the reimposition of U.S. sanctionsagainst Iran's fuel exports was softened by waivers that willallow some countries to still import Iranian crude, at leasttemporarily. U.S. stock futures were down 0.3 percent amid concerns atrade deal between the United States and China may not be strucksoon."After a four-day rally people tend to become a bitexhausted - and just generally I feel like everyone's on holduntil the (end-November) G20 and also the Fed coming up," saidGregory Perdon, chief investment officer at Arbuthnot Latham.
"Our sense is absolutely that there's a lot of cash on thesidelines right now."
Overnight, MSCI's broadest index of Asia-Pacific sharesoutside Japan lost 1.2 percent, slipping backtowards last week's 18-month trough.
Chinese blue-chips fell after White House economic adviserLarry Kudlow denied Washington has drafted a trade agreementwith Beijing. President Xi Jinping acknowledged conditions abroad hadcreated some challenges for the Chinese economy, but promised tolower import tariffs and continue to broaden market access. "The market hasn't been paying as close attention as theymight normally because they've been a bit distracted by thespectre of a trade war. But the policy response out of China hasbeen massive," said Arbuthnot Latham's Perdon.Emerging stocks tumbled 0.9 percent.
With the Federal Reserve meeting on Wednesday and Thursday,the prospect of even tighter U.S. monetary policy after strongeconomic data is also on investors' minds.
Markets are now pricing in a higher probability of aDecember rate hike with further tightening to 2.75-3.00 percentseen through 2019.
Tighter monetary policy, a stronger dollar, and tradetariffs have created what Citi strategists call "Trump's tripletightening" this year.
"This ...has slowed growth and raised risks around theworld," they wrote.
Investors were also cautious ahead of the U.S. midtermelections.
Opinion polls show a strong chance the Democratic Partycould win control of the House of Representatives after twoyears of wielding no practical political power in Washington,with Trump's Republican Party likely to hold the Senate. "What's spooking the market is not Congress or Senate -what's spooking the market is the volatility of Trump," saidPerdon. "I'm not convinced if there's a change of control thatwould be able to temper that."
BREXIT HOPES BOOST STERLING
Sterling briefly jumped to a two-week high on hopes of aBrexit deal, before paring gains to trade up 0.2 percent at$1.2990.
A Sunday Times report that an all-UK customs deal will bewritten into the agreement governing Britain's withdrawal fromthe European Union drove the pound to $1.3062, itshighest since Oct. 22.
May's office said the report was speculative, but that 95percent of the withdrawal agreement was settled and negotiationswere ongoing.
The dollar index that measures it against a basket ofmajor currencies was little changed. The euro held flat at$1.1389.
Core euro zone bond yields fell as expectations of fasterU.S. rate hikes, doubts over Sino-U.S. trade talks and themid-term elections prompted more defensive positioning.
Italian bond yields rose, however, driving bank stocks down 1.8 percent.Italy's FTSE MIB was Europe's worst-performing index asGoldman Sachs analysts predicted more cuts to earnings forecastsfor Italian lenders, cutting BPER Banca and Intesa Sanpaolo to"sell".
U.S. crude fell 0.3 percent and Brent wasdown 0.2 percent.
(Reporting by Helen Reid, editing by John Stonestreet)
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