* Equity markets calm ahead of Fed chief's testimony
* Sterling gains on hawkish BoE deputy governor, Corbyn
* Chinese stocks rally as Xi set to stay in power
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
* For a live blog on European stocks, type LIVE/ in an Eikon news window
LONDON, Feb 26 (Reuters) - Global stocks notched further gains on Monday and the dollar stayed on the back foot, as investors bet the new head of the U.S. Federal Reserve will steer a steady course on policy when he addresses lawmakers this week.
MSCI's index of world stocks was up 0.4 percent, with the pan-European Stoxx 600 up 0.7 percent.
Asian markets also rose, with Chinese stocks up 1.2 percent after the ruling Communist Party set the stage for President Xi Jinping to stay in office indefinitely.
Much of the market's focus during the coming week will be on monetary policy, with the heads of the European Central Bank and Bank of England set to give speeches. But they are likely to be overshadowed by Fed chair Jerome Powell.
U.S. stock markets calmed on Friday after the Fed said it saw steady economic growth continuing and no serious risks on the horizon.
Investors also seem to be wagering that Powell will stick to that script at his first appearance before the House on Tuesday, followed by testimony to the Senate on Thursday.
"Given he's speaking on behalf of the committee it would be a big surprise to see much deviation from recent Fed commentary, but much will probably be made of how he handles the scrutiny," said Jim Reid, a macro strategist at Deutsche Bank.
STERLING, EURO GAIN
The expected lack of policy surprises from Powell saw yields on U.S. 10-year Treasuries back off to 2.86 percent and away from a four-year top of 2.957 percent, dragging down the dollar.
The currency surrendered early gains to dip 0.3 percent against a basket of currencies to 89.66. That followed a 0.8 percent bounce last week.
Sterling was up 0.5 percent on Monday after Bank of England deputy governor Dave Ramsden said the bank might need to raise interest rates somewhat sooner than he had expected if wage growth picked up early this year.
The pound also benefited from hopes that Britain's exit from the European Union might be less disruptive than feared, with opposition leader Jeremy Corbyn set to give a speech on Monday backing a new customs union with the bloc.
The euro was 0.3 percent firmer on the back of dollar weakness, though investors largely held back from taking big positions ahead of a national election in Italy and the conclusion of coalition talks in Germany.
ECB President Mario Draghi is also set to appear before the European Parliament later in the day, while BoE governor Mark Carney speaks in Edinburgh on Friday.
In commodities, oil prices steadied after hitting their highest level in nearly three weeks, supported by comments from top exporter Saudi Arabia that it would continue to curb shipments in line with the OPEC-led effort to cut global supplies.
(Reporting by Alasdair Pal, Additional reporting by Wayne Cole in Sydney; editing by John Stonestreet)