* MSCI world equity index steady, Europe falls
* Uncertainty over automaker bailout weighs
* Euro up after ECB's Stark casts doubt on large rate cuts
By Natsuko Waki
LONDON, Dec 11 (Reuters) - European stocks fell and oil erased earlier gains on Thursday, hurt by uncertainty over a $14 billion rescue plan for U.S. automakers, while doubts about deep euro zone interest rate cuts boosted the single currency.
The proposal to bail out the big three U.S. automakers passed the House of Representatives but its prospects looked grim in the Senate where supporters, who say the measure is necessary to avoid another jolt to an already contracting economy, struggled to keep it alive.
China's consumer inflation slowed to a 22-month low, fanning concerns that persistently declining prices due to weak demand could lead to rising unemployment and prolong economic downturns. Deflation is also damaging for many risky assets.
"As a slew of dismal economic indicators have shown, the global economy is weak. We can't yet be optimistic," said Yousuke Hosokawa, treasury department senior manager at Chuo Mitsui Trust and Banking in Japan. The FTSEurofirst 300 index of leading European shares was down 1.5 percent. MSCI world equity index was unchanged on the day, having hit a one-month high earlier. Emerging stocks rose 0.3 percent.
U.S. crude oil was up 0.3 percent at $43.65 a barrel, having climbed more than 1 percent earlier. Signs that top oil exporter Saudi Arabia has slashed January supplies ahead of next week's OPEC meeting have underpinned prices.
The euro rose almost 1 percent to $1.3136 after European Central Bank Executive Board member Juergen Stark said the central bank does not have a lot of room for manoeuvre after its interest rate cut last week. Stark also said further rate reductions could be done only in small steps.
The region's interest rate futures are now showing that the euro zone cost of borrowing to bottom out at 1.75 percent, from just over 1.5 percent after the ECB's move last week to cut rates to 2.5 percent.
The Swiss franc cut earlier gains to trade at 1.1921 per dollar after the Swiss National Bank cut interest rates by 50 basis points.
The dollar fell 0.7 percent against a basket of major currencies.
"We believe the dollar is losing its allure because of the Fed's quantitative easing and evaporating real yields," JP Morgan said in a note to clients.
The Federal Reserve has signalled it could buy government and agency bonds in order to influence yields and stimulate demand as interest rates move closer to zero.
The December Bund futures was up 6 ticks.
Measures taken by central banks and governments had helped risky assets this month, which some say tends to see a year-end rally before a relapse in the new year.
Switzerland, Canada and Korea joined a growing number of central banks worldwide in cutting interest rates over the past 24 hours. U.S. President-elect Barack Obama also announced large infrastructure investment plans last weekend. (Editing by Mike Peacock)