* MSCI world equity index down 0.7 percent at 288.26
* Oil down more than 2 percent
* Dollar firms before G20, Fed meeting
By Natsuko Waki
LONDON, Sept 21 (Reuters) - World stocks retreated further from last week's 11-month high on Monday as lower energy and commodity prices and caution ahead of a Federal Reserve meeting and G20 summit prompted investors to trim risky trades.
Leaders of the Group of 20 meet on Thursday and Friday in Pittsburgh and U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis.
World stocks, measured by MSCI have risen over 26 percent this year, recouping more than half of last year's losses, underpinned by repeated pledges by G20 policymakers to keep emergency support for the economy in place.
"The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low, valuations aren't expensive," said Nick Nelson, European equity strategist at UBS. MSCI world equity index fell 0.7 percent, while the FTSEurofirst 300 index lost 0.6 percent.
Emerging stocks also dropped 0.6 percent.
U.S. stock futures were down around 0.5 percent, paring losses after Dell said it would acquire Perot Systems for $3.9 billion. Perot System's shares surged 66 percent in pre-market trading.
EXIT STRATEGY
The Fed is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent on Wednesday, and investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and hiring.
While any signal that the Fed might start unwinding its loose monetary policy shows the central bank is acknowledging the recovery, it could be negative for risky assets as it could fan speculation of an interest rate hike.
The Fed has pledged to buy up to $1.45 trillion of mortgage-backed securities and debt issued by government sponsored Fannie Mae and Freddie Mac by end-2009.
Concerns about weak fuel demand pushed U.S. crude oil down 2.4 percent to $70.25 a barrel after Asia's No.1 refiner Sinopec said that diesel China continued to lag economic recovery with fuel sales so far this year still below the rates seen a year ago.
The September bund future was steady, unable to take advantage of falling equities and investors grew concerned about the prospect of euro zone and U.S. debt supply.
The dollar rose 0.6 percent against a basket of major currencies, after hitting a one-year low last week, while the U.S. currency rose 1 percent to 92.21 yen.
"The yen may end up being the biggest winner against the dollar. It has yet to significantly overshoot against the dollar, unlike every other G10 currency. Real yields are moving in its favour and nominal yields versus the U.S. are negligible," Deutsche Bank said in a note to clients.
"Dollar/yen will likely break below last year's low of 87 and could even reach 80 over the next 3-6 months."
Sterling fell to a five-month low of 90.79 pence per euro after the Bank of England said the British currency's long-run sustainable exchange rate may have fallen due to an increased focus on Britain's economic imbalances following the global credit crisis. (Additional reporting by Dominic Lau; Editing by Ron Askew)