(Corrects 'month' to 'week' in headline and first paragraph)
By Natsuko Waki
LONDON, July 5 (Reuters) - World stocks steadied below this week's 4-1/2 week high on Tuesday while the euro fell as worries about further monetary tightening in China and uncertainty over the euro zone and U.S. economic outlook made investors cautious.
Speculation about a possible rate rise in China this weekend curbed a pick-up in demand for risky assets since last week as did a Moody's report saying the scale of problem loans at local governments in China may be much bigger than previously thought.
In the euro zone, a survey showed growth in the region's dominant service sector slowed for a third straight month in June, and by more than an initial estimate, with sluggish new orders dimming the outlook.
Investors were also waiting to see more evidence the U.S. economic recovery is gaining momentum before taking on more risks, especially after world stocks, measured by MSCI, posted their best weekly gain in a year last week.
"Part of the reason for the rally last week was better-than-expected data out of the United States. The markets want to see whether that will continue and whether the soft patch has come to an end," said Jeremy Batstone-Carr, strategist at Charles Stanley.
"There is still plenty of reason for most investors to be strategically cautious."
The MSCI world equity index was down slightly on the day, after hitting its highest since June 1 on Monday. The index has risen almost 5 percent since January.
European stocks rose 0.1 percent while emerging
stocks briefly hit a one-month high. U.S. stock
futures pointed to a slightly firmer open on Wall Street
U.S. crude oil
German government bond futures
EURO FALLS
The euro fell 0.5 percent to $1.4472 after hitting a one-month high near $1.4580 on Monday.
The single currency rose more than 2 percent last week, posting its best weekly performance since January. It suffered a brief setback on Monday after Standard & Poor's warned it would treat a rollover of privately held Greek sovereign debt now being discussed as a selective default.
S&P's warning came after Greece secured a 12 billion euro loan that will prevent it defaulting in mid-July or August. But the focus is on a second assistance package likely to be about the same size as last year's 110 billion euro EU/IMF bailout.
Greek Finance Minister Evangelos Venizelos told Reuters on Monday the country would stave off default not only for its own sake but because its survival is vital for the euro zone and the global economy.
The euro's downside was limited thanks to expectations the European Central Bank would raise rates to 1.5 percent on Thursday and signal more tightening.
"We expect the ECB to deliver additional hikes in October 2011 and January 2012, bringing the refinancing rate to 2 percent. The ECB is then likely to take a pause as inflation comes down and headwind from fiscal tightening intensifies," Danske Bank said in a note to clients.
"The realisation of the rate hike and a more hawkish tone than generally expected should lift rates and result in euro/dollar strengthening." (Additional reporting by Brian Gorman; Editing by Susan Fenton)