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* World stocks flat, just off six-month high
* Bond yields rising on expectation of more policytightening
* German, U.S. yields at multi-month high
* Oil near 4-year highs on supply concerns
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh(Releads, updates prices, adds quote)
By Tommy Wilkes and Sujata Rao
LONDON, Sept 25 (Reuters) - European shares rose and WallStreet was set for a stronger open on Tuesday, as oil above $80a barrel lifted energy shares, despite worries around the latestU.S.-China tariff round and central bank rate hikes.
Following falls across Asian share markets, European boursesturned higher, with a pan-European index up 0.5 percent. Futures for New York's S&P500, Nasdaq and Dow Jonesindices were up to 0.25 percent higher, indicating a strongersession following Monday's falls .
MSCI's main index of world stocks alsoinched into positive territory, though it held off the six-monthhighs hit earlier this month.
While trade tensions continue to fray investors' nerves, oilgrabbed the spotlight. After surging more than three percent onMonday, Brent crude futures shot to four-year highs ofalmost $82 a barrel.
The jump was down to U.S. sanctions on Iranian crude exportsand the apparent reluctance of OPEC and Russia to counterbalancethat by upping output.
"The combination of tight supply, healthy demand, fallingglobal inventories – down from already under-stored levels – andanemic spare capacity helps support an oil price which could endthe year above $90," Richard Robinson, manager of Ashburton'sGlobal Energy Fund, said.
While oil's rise will fan inflation and growth concerns inmany countries, it boosted European equities - an index of oiland gas shares rose 1.5 percent to its highest since May. In the UK, energy heavyweights Shell and BPjumped 2-2.5 percent to lift the FTSE index 0.5 percent.
Pre-market trades indicated U.S. giant ExxonMobil was set toopen 0.6 percent higher.
But the rise in energy shares failed to dent broader marketpessimism after new tariffs imposed by Beijing and Washington oneach other's goods kicked in on Monday and Chinese Vice CommerceMinister Wang Shouwen accused the United States of putting "aknife to China's neck".
Neither side appears ready for compromise, worryinginvestors that the conflict is fast-becoming a protracted battlethat will chill investment and hurt global trade.
"Markets have tried hard to shrug off the implications of anescalating trade spat on global trade and growth but this isbecoming harder with each fresh round of tariffs and will slowlybut surely take its toll on investor sentiment," Jasper Lawler,head of Research at London Capital Group, said.
There are other big worries for investors too, not least thetiming and pace of central bank policy tightening.
While the U.S. Federal Reserve will almost certainly hikerates for a third time in 2018 this week, European Central BankPresident Mario Draghi on Monday raised expectations the eurozone will also start to normalise policy over the coming year byreferring to "relatively vigorous" underlying inflation andbrisk wage growth.
That pushed German 10-year bond yields to four-month highsabove 0.5 percent, while yields also rose across theeuro bloc with money markets now pricing a rate rise by the ECBnext September. That's a marked change from a few weeks ago whena move was only expected by December 2019.
The outlier was Italy, where yields dropped sharply on signsthe government is not planning a huge budget deficit that couldraise its debt levels.
U.S. 10-year Treasury yields touched a new four-month highabove 3.10 percent.
Goldman Sachs analysts noted a change in how markets wereviewing rising bond yields - having considered them a signal ofimproving growth and hence a positive for equities, higher bondyields were becoming attractive in their own right, they said.
"With U.S. 10-year bond yield above 3 percent and U.S. realyields close to 1 percent, the risk especially to equities fromrates is now back in focus," they told clients in a note.
"We think the bar for investing in risky assets is rising asreturns on safer assets are becoming more attractive."
Currency markets were mostly quiet as investors watched fromthe sidelines before the Fed meeting.
The euro strengthened 0.3 percent to around $1.178after rising above $1.18 following Draghi's inflation comments,while sterling too rose 0.3 percent, up for the secondstraight day on hopes Britain will eventually clinch alast-minute deal before exiting the European Union next March.
The dollar slipped 0.12 percent, but stayed abovetwo-month lows hit at the end of last week.
The dollar's three percent drop since mid-August has givensome respite to emerging markets in recent days but MSCI'semerging equity index slipped 0.2 percent, while mostemerging currencies also weakened, anticipating a hawkish tonefrom the Fed.
(Additional reporting by Helen Reid in LONDON and ShinichiSaoshiro in TOKYO; Editing by Andrew Heavens)
