By Helen Reid

LONDON (Reuters) - World stocks slipped and U.S. shares were set to fall on Monday, halting a four-day recovery rally as anxiety surrounding global trade conditions and rising U.S. interest rates dampened risk appetite.

European shares managed to reverse losses in choppy trade as investors readied for U.S. congressional midterm elections on Tuesday, while sterling briefly climbed on a newspaper report that a Brexit agreement was imminent.

U.S. stock futures fell into the red, though, indicating a weaker start for Wall Street with S&P 500 futures down 0.1 percent and Nasdaq futures down 0.3 percent.

MSCI's all-country world index lost 0.2 percent as investors remained cautious.

"Everyone's on hold until the (end-November) G20 and also the Fed coming up," said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. "Our sense is absolutely that there's a lot of cash on the sidelines right now."

Chinese blue-chips fell overnight after White House economic adviser Larry Kudlow denied Washington has drafted a trade agreement with Beijing.

But investors looked to signs of support from Chinese stimulus to withstand higher trade tariffs. President Xi Jinping promised to lower import tariffs and continue to broaden market access.

"The market hasn't been paying as close attention as they might normally because they've been a bit distracted by the spectre of a trade war. But the policy response out of China has been massive," said Perdon.

Emerging stocks tumbled 0.8 percent.

With the Federal Reserve meeting on Wednesday and Thursday, the prospect of even tighter U.S. monetary policy after strong economic data is also on investors' minds.

Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00 percent seen through 2019.

Tighter monetary policy, a stronger dollar, and trade tariffs have created what Citi strategists call "Trump's triple tightening" this year.

"This ... has slowed growth and raised risks around the world," they wrote.

Investors were also cautious ahead of the U.S. midterm elections.

Opinion polls show a strong chance the Democratic Party could win control of the House of Representatives after two years 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," said Perdon. "I'm not convinced if there's a change of control that would be able to temper that."

BREXIT HOPES BOOST STERLING

Sterling briefly jumped to a two-week high on hopes of a Brexit deal, before paring gains to trade up 0.1 percent at $1.2986.

A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the European Union drove the pound to $1.3062, its highest since Oct. 22.

May's office said the report was speculative, but that 95 percent of the withdrawal agreement was settled and negotiations were ongoing.

The dollar index that measures it against a basket of major currencies was up 0.12 percent while the euro fell 0.2 percent to $1.1365.

Core euro zone bond yields fell as expectations of faster U.S. rate hikes, doubts over Sino-U.S. trade talks and the mid-term elections prompted more defensive positioning.

Italian bond yields rose, however, driving bank stocks down 1.4 percent.

Italy's FTSE MIB was Europe's worst-performing index as Goldman Sachs analysts predicted more cuts to earnings forecasts for Italian lenders, cutting BPER Banca and Intesa Sanpaolo to "sell".

Oil prices steadied as the reimposition of U.S. sanctions against Iran's fuel exports was softened by waivers that will allow some countries to continue to import Iranian crude, at least temporarily.

Brent crude was unchanged at $72.83 a barrel.

Overall the recent drop in share prices has not been reflected in falling earnings expectations, and some expect stocks to pick up again once key political risks are out the way.

(Reporting by Helen Reid; Additional reporting by Virginia Furness; Editing by Matthew Mpoke Bigg)

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