* Global stocks fall as Shanghai tumbles 6.7 percent
* Historic Japan opposition win boosts yen
* Oil down on doubts about Chinese economy (updates prices, adds quotes)
By David Stamp
LONDON, Aug 31 (Reuters) - Global stocks edged lower on Monday, dragged down by a 6.7 percent tumble in China which sent nervous investors into the yen, while an historic opposition victory in Japanese elections also gave the currency a boost.
Shanghai's big drop had a psychological knock-on effect on international sentiment, even though Chinese share trading is largely cut off from global markets.
U.S. stock index futures also pointed to a lower open on Wall Street on Monday as investors worried about whether Beijing authorities will keep on boosting the Chinese economy, one of the leaders of the global recovery.
"The worry is that (China) will stop putting money into the system. That will hurt China," said Philippe Gijsels, senior equity strategist at Fortis Bank, in Brussels. "Of course, that has a very important impact on the world economy, or the sentiment at least."
Global investors, nervous about whether the major economies can pull convincingly out of recession with China's help, shied away from risk taking and opted for the perceived safety of the yen and government bonds.
MSCI's all-country world stock index was down 0.56 percent at 1055 GMT in a market subdued by a public holiday in Britain, while the FTSEurofirst 300 index of top European shares was down 0.47 percent after reaching a 10-month high on Friday.
Shanghai stocks fell 6.7 percent to a three-month closing low and recorded their second-biggest monthly loss in 15 years.
Foreign investment on the Chinese stock market is limited, leaving trading largely to domestic players. Nevertheless, global investors decided to play safe after strong gains in recent months. For instance, the FTSEurofirst 300, which plunged 45 percent in 2008, is up nearly 17 percent this year and about 50 percent from a lifetime low in early March.
"What we are facing here is a worried market ... We've had such a nice rise here that everyone is talking about pullback," said Peter Cardillo, chief market economist at Avalon Partners in New York.
STRONGER YEN
In Tokyo, the Nikkei average fell as the stronger yen and tumbling Shanghai stocks helped to erase a jump to an 11-month high after the election results.
Sunday's landslide victory for Yukio Hatoyama's Democrats ends a half-century of almost unbroken rule by the Liberal Democratic Party and breaks parliamentary deadlock.
However, the market was struggling to interpret the results.
"We remain sceptical whether the yen will hold on to these gains as the incoming DPJ government is facing massive hurdles," Commerzbank analysts said in a note.
"Unemployment is at a record high, public debt is the highest within the G7 and the Japanese social system is facing more and more problems due to demographic changes."
The Nikkei lost 0.4 percent or 41.61 points to 10,492.53 after bouncing briefly to an 11-month high of 10,767.00.
YEN RISES BROADLY
The yen rose broadly, hitting a seven-week high against the dollar. "Clearly the yen is getting a boost from risk aversion and from falls in Chinese stocks," said Stockholm-based SEB currency strategist Carl Hammer.
Currency investors hoped that new policies in Japan will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook.
At 1100 GMT, the dollar was 0.6 percent lower at 93.05 yen, having earlier hit a low of 92.54 yen on trading platform EBS, its weakest level since mid-July. The euro lost 0.7 percent to 132.87 yen. Against the dollar, the euro dipped to $1.4277.
Risk aversion also helped government bonds. The Bund future was 14 ticks up on the day at 122.77, while benchmark 10-year Treasury notes rose 5/32 in price to yield 3.431 percent, down two basis points from on Friday.
Oil fell more than 2 percent to around $71 a barrel as the drop in China's key stock index stoked worries about the pace of economic recovery and a revival in energy demand.
U.S. crude for October fell $1.72 to $71.02 a barrel by 1053 GMT. London Brent crude lost $1.90 to $70.89.
"The sharp drop in Chinese markets is causing concerns and is inevitably making some investors rethink the risks to China's economy and question their assumptions on the country's growth rate and energy consumption," said Daniel Liu, a commodities strategist at MG Global Singapore.