World stocks slip after China hike

World stocks pulled back from a 29-month high on Wednesday as China's interest rate rise prompted investors to book profits, while inflation expectations sent US and UK benchmark bond yields to multi-month highs.

China raised interest rates on Tuesday for the second time in just over six weeks, ratcheting up its battle against inflation.

Monetary tightening in the world's second-biggest economy, if aggressive, could potentially put a brake on global growth and weigh on equities and commodities. But investors remained confident China's proactive but gradual stance will not derail the global recovery.

In the short term, the rate hike gave investors an excuse to consolidate their positions after the benchmark world index rallied nearly 4% since the start of the year.

Wall Street looked set to open lower, with US stock futures down 0.3%.

Investors also had their eye on an address by Federal Reserve Chairman Ben Bernanke later on Wednesday, when he may give clues on the outlook for US interest rates.

"China is turning its focus towards inflation, rather than (slowing) growth," said Adam Myers, senior currency strategist at Credit Agricole CIB. "What this means is that growth is likely to continue."

The MSCI world equity index fell 0.4%, having hit a 29-month peak on Tuesday, while the Thomson Reuters global stock index was down 0.3%.

The FTSEurofirst 300 index was down 0.1%.

Emerging stocks were down one percent while Shanghai shares dropped 0.9%.

US crude oil rose 0.5% to USD 87.38 a barrel while London crude prices jumped above USD 100 due to tighter North Sea supplies.

Bund futures were steady on the day while 10-year US Treasury yields climbed as high as 3.77%-- their highest since late April -- in the wake of a lacklustre US bond auction.

The yield on 10-year British government bonds rose as high as 3.915%, its highest since May 2010.

Concerns about inflation are putting upward pressure on yields in the run-up to the Bank of England's monetary policy decision on Thursday. Money markets are pricing in a small risk of a rate rise this week and a full quarter-point hike by May.

The dollar ticked a touch lower against a basket of major currencies.

The euro erased earlier gains to hold steady on the day at USD 1.3624 after sources said Bundesbank chief Axel Weber will not be a candidate to replace Jean-Claude Trichet as the European Central Bank president.

Federal Reserve Chairman Ben Bernanke said last week that the US economy still needs the Fed's help -- a stance many traders expect him to repeat when he speaks on Wednesday.