* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
Oil prices steadied after hitting 7-month trough
* Investors price in lower inflation, boost long-term bonds
* Asia, Europe shares stumble as energy, bank stocks fall
* China stocks get limited lift from MSCI inclusion
* Dollar underpinned, sterling rebounds after BoE comments
By Marc Jones and Sujata Rao
LONDON, June 21 (Reuters) - A renewed slump in oil prices to seven-month lows dragged down world stocks and long-term bond yields on Wednesday, as bets that global inflation and interest rates will stay lower for even longer began to build again.
Signs of a growing glut of supply sent Brent crude futures skidding back to $45.50 a barrel before talk of more OPEC cuts halted the slide and steadied government debt yields and Wall Street futures prices.
Poorly performing banking stocks continued to hold down Europe's main markets in London, Paris and Frankfurt though they too were off their lows as energy firms began to recover.
The earlier slide in energy costs had boosted bond prices and flattened yield curves as investors priced in lower inflation for longer, while safe-haven flows underpinned the Japanese yen.
The spread between yields on U.S. five-year notes and 30-year bonds shrank to the smallest since 2007 as investors wagered the Federal Reserve might have to delay further rate hikes.
Thirty-year German debt yields bonds also tumbled back towards two-month lows, adding to a more than 20-basis-point drop over the past month and ahead of what will now be a closely watched sale of 30-year debt in Berlin later.
The recent setback for crude and commodity prices as well some equity markets is partly down to doubts over U.S. President Donald Trump's promised multi-trillion dollar stimulus programme, which had raised hopes of boosting inflation and growth.
"Brent now the lowest since mid-November: remember that whole reflation thing? No, neither does the market," Rabobank analysts told clients, referring to Brent crude futures, which have slid almost 10 percent this month.
Oil had nudged its way back above $46 ahead of U.S. trading. It shed 2 percent on Tuesday, taking U.S. crude futures 20 percent off recent highs and thus into official bear territory, a red flag to investors who follow technical trends.
It also meant oil was on course for its worst start to a year since 1991.
In Asia there had been muted reaction to global index provider MSCI's decision to add the first batch of mainland Chinese stocks to its popular emerging equity benchmark.
Indexes in Shanghai and Shenzen moved around 0.5 percent higher after the decision, which could ultimately bring $340 billion of foreign capital to the so-called A-share market.
The commodity and bond market turbulence and falls in Europe pushed MSCI's all-country share index down 0.2 percent after its 0.7-percent slide on Tuesday compounded by a weak close on Wall Street .
JOINING THE CLUB
The acceptance of some Chinese "A" shares into MSCI's Emerging Markets Index was seen as a symbolic win for Beijing after three failed attempts. Yet the step is still a small one.
Only 222 stocks are being included and, with a weighting of just 5 percent, they will account for only 0.73 percent of the Emerging Markets Index.
MSCI estimated the change, due around the middle of next year, would drive inflows of between $17 billion and $18 billion. China's market cap is roughly $7 trillion.
The index provider set out a laundry list of liberalisation requirements before it would consider further expansion.
"We suspect that it will be a long time before this happens," wrote analysts at Capital Economics. "While China's weighting in the MSCI Emerging Markets Index may ultimately rise to 40 percent or so, this rise is likely to be slow.
"The upshot is that any initial boost to equities is likely to be small."
MSCI also said it would consult on adding Saudi Arabia to the emerging markets benchmark and that Nigeria will remain a frontier market, but it shocked many emerging market investors by declining to upgrade Argentina from the frontier market category.
In currency markets, the overnight flight from oil and into long-dated government bond benefited the safe-haven yen which climbed to 111.120 per dollar before running out of steam.
Against a basket of currencies the dollar was steady at 97.736 having touched a five-week peak overnight.
The euro stood at $1.1152 after hitting a three-week low, while sterling rallied as Bank of England's chief economist said he was likely to back an increase in interest rates a day after the bank's governor had said the time was not right.
Having slid back under $1.26 and towards 90 percent per euro, the pound raced all the way back to $1.27 and 87.75 pence per euro.
"If his opinion is shifting then that is potentially significant news for rates going forward," said Adam Cole, head of FX strategy at RBC Capital Markets in London, adding Haldane has typically been one of the most dovish BoE members.
(Additional Reporting by Wayne Cole; Editing by Jeremy Gaunt)