* G20 drops pledge to resist all forms of protectionism
* Dollar continues drift lower
* U.S. yields capped, curve flatter
By Jamie McGeever
LONDON, March 20 (Reuters) - World stocks opened the week on a cautious footing on Monday after the G20’s decision to drop a pledge to avoid trade protectionism, while the U.S. Federal Reserve’s conservative rate guidance continued to push the dollar lower.
Asian stocks were mixed, European stocks fell as much as 0.3 percent and U.S. futures pointed to a fall of around 0.2 percent at the open on Wall Street.
The dollar fell to a six-week low, falling four days in a row for the first time since early November.
“European equity markets have started the week with a heavy risk-off sentiment after the G20 communiqué explicitly reflected U.S. intentions to establish trade protectionist measures,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
“As the world’s number one economy is preparing to set significant barriers against the world, investors are increasingly worried,” she said.
Financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States after a two-day meeting failed to yield a compromise.
Breaking a decade-long tradition of endorsing open trade, G20 finance ministers and central bankers made only a token reference to trade in their communique on Saturday, a clear defeat for host nation Germany, which fought the new U.S. government’s attempts to water down past commitments.
The FTSEuroFirst index of leading 300 European shares fell 0.3 percent to 1,487 points, and Germany’s DAX and Britain’s FTSE 100 also fell 0.3 percent in early trade.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose almost 0.4 percent to hit its highest level in more than two years on Monday. As a result, MSCI’s global benchmark equity index was little changed.
On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with Treasury yields.
The 10-year U.S. Treasury yield has fallen around 10 basis points below 2.50 percent since the Fed raised rates last week for only the third time in over a decade.
The gap between two- and 10-year yields has shrunk, meaning the yield curve has flattened. This suggests investors are sceptical growth and inflation will be strong enough to warrant a sustained cycle of rate hikes, and has subsequently weighed on the dollar.
After raising rates last week, the Fed reiterated plans for a total of three rate hikes this year, fewer than the four markets were expecting.
G20 financial officials reiterated their warnings against competitive devaluations and disorderly currency markets. The dollar didn’t show much reaction, taking its cue instead from the moves in U.S. yields.
Currency markets are also focused on a raft of speeches by Fed officials this week, including Chicago’s Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas’s Robert Kaplan and Minneapolis’s Neel Kashkari on Friday and New York’s William Dudley on Saturday.
“Sentiment towards the dollar has deteriorated significantly,” Societe Generale FX analysts said in a note to clients on Monday.
The dollar index of its value against a basket of six currencies fell to a six-week low of 100.02 on Monday.
It fell 0.2 percent against the yen before recovering to trade flat on the day at 112.70 yen, while the euro rose 0.3 percent to $1.0770.
Citi became the latest major bank to abandon its headline forecast for a fall in the euro to below parity with the dollar, upping its prediction for the single currency over the next six to 12 months to $1.04 from $0.98 previously.
Attention now turns to the French election, with the first Presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her in the run-off.
In commodities, oil prices continued their downward trend as OPEC supplies remained steady despite touted cuts and rising U.S. drilling contributed to concerns about a supply glut.
U.S. crude dropped 1 percent to $48.29 a barrel.
Global benchmark Brent fell 0.7 percent to $51.40.
The weaker dollar boosted gold, which rose 0.4 percent at $1,233 an ounce, after touching a two-week high earlier in the session.
Reporting by Jamie McGeever; Editing by Andrew Heavens