* MSCI world equity index down 0.4 pct at 274.03
* Yen holds near 7-week high against dollar, oil slips
* China data upbeat after Monday stocks slide
By Natsuko Waki
LONDON, Sept 1 (Reuters) - Global stocks and oil fell on Tuesday and government bonds rose as investors grew concerned about the durability of the recent rally, while the yen held firm after a landslide election win for Japan's opposition.
The MSCI world equity index <.MIWD00000PUS> came under pressure on Monday following a near-7 percent decline in China's stocks <.SSEC> -- the worst one-day loss since mid-2008.
Shanghai stocks did rise on Tuesday after data showing a steady recovery in the manufacturing sector [ID:nPEK62430], but fears persist that the Chinese government is reining in bank lending to head off potential asset bubbles.
World stocks have rallied more than 3 percent in August to 10-month highs and over 35 percent since the end of March, on signs the global economy may be emerging from recession.
But investors are worrying that the rally in both global and European stocks may be running out of steam.
"Defensives had been leading the way this morning, so it looked like the market was not feeling altogether happy with things," said Mike Lenhoff, strategist at Brewin Dolphin.
"Maybe the market is just a bit uncomfortable at having progressed non-stop against a background of incredibly good newsflow. The market has been looking overbought so maybe technically it is just up with events and apprehensive about storming ahead with no consolidation or pause for breath."
The MSCI index was down 0.4 percent, having hit a 10-month
high last week. U.S. stock futures fell around 0.7 percent
Oil fell 0.3 percent
The FTSEurofirst 300 index <.FTEU3> erased early gains to
fall over 1 percent. September Bund futures benefited from the
drop in equities, rising 19 ticks
YEN FIRM POST-ELECTION
The yen softened but held near a seven-week high against the
dollar
The yen weakened around 0.17 percent to 93.20 per dollar.
The euro fell 0.3 percent to $1.4291
Reviving the Japanese economy is the Democratic Party's top priority with unemployment at a record high and investors concerned about deflation and whether the new government will raise spending and increase still further the country's soaring public debt. [ID:nT76127]
Investors are watching to see whether economic policies will be sufficient to bolster the global equities rally.
"Some warning signs have begun to emerge that suggest we may be facing a near-term correction, such as the breakdown in the Chinese stock market and the possibility that the world is at the forefront of a new interest rate policy tightening cycle," said Bob Doll, chief investment officer of equities at BlackRock, in a client note.
"We have little doubt that markets will remain volatile, but as long as policymakers remain focused on the downside economic risks, we expect the positive factors will outweigh the negatives."
(Additional reporting by Joanne Frearson and Carolyn Cohn; Editing by Andy Bruce)