* World stocks off one-month high on Fed, trade caution
* Fed rate hike priced in, focus on pace of future tightening
* Chinese markets down on trade fears, ZTE slump
* European shares flat to lower; auto shares down
* Italian yields fall as eurosceptic minister calls euro "indispensable" (Updates prices throughout, adds chart, Wall Street)
By Sujata Rao
LONDON, June 13 (Reuters) - World stocks hovered near one-month highs on Wednesday as an expected U.S. interest rate rise and risks of a fresh outbreak of trade tensions between China and the United States overshadowed a generally benign political and economic backdrop.
Wall Street appeared set for a modestly firmer open, potentially building on the previous session's gains, which were fuelled by buoyant mergers and acquisitions activity among media and telecoms firms .
European shares rose too as global company earnings have been revised up, according to Thomson Reuters I/B/E/S.
However, assets such as Chinese stocks, European autos and the Mexican peso are under pressure from the risk of protectionist measures from the United States which is preparing to unveil more tariffs on $50 billion worth of Chinese goods.
And the U.S. Federal Reserve, the European Central Bank and the Bank of Japan all hold policy meetings this week, with the Fed expected to announce its second rate rise of 2018.
Equity markets are "marking time and finding it difficult to make upward progress despite reasonably good economic data", said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.
"We are entering three days of important central bank decisions. Markets have pretty much priced what (the banks) will do and it is clear we are in a monetary policy tightening cycle."
These issues eroded slim gains made around Tuesday's summit between U.S. President Donald Trump and North Korean leader Kim Jong Un. The meeting has soothed some geo-political fears, as a joint statement pledged to work toward the "denuclearization" of the Korean Peninsula.
MSCI's all-country share index was flat, recovering slightly from deeper losses caused by a half percent fall in non-Japan Asian equities.
European stocks too were 0.3 percent higher after a weak start, led by a 1.4 percent rise in the tech index and an 80 percent leap in Dutch fintech firm Adyen on its first day of trading.
An index of auto stocks lagged, however, with gains of 0.2 percent.
Milligan downplayed the impact of U.S. trade measures on global commerce but noted "the direction of travel is not positive, which is why equities are not making as much progress and investor sentiment is not more positive."
Investors see trade wars as the biggest market risk, a closely watched survey from Bank of America Merrill Lynch (BAML) showed. It showed investors bullish on equities but still holding high levels of cash in portfolios -- a clear sign of wariness.
In a reminder of the danger of trade disputes, shares in Chinese telecommunications giant ZTE Corp fell as much as 41.5 percent, wiping $3 billion off its market value, as it resumed trade after agreeing to pay up to $1.4 billion in penalties to the U.S. government.
Its Shenzhen shares fell by their 10 percent limit, dragging down mainland Chinese shares around 1 percent
The Mexican and Canadian currencies, remained under pressure from trade war fears, the former hitting 16-month lows against the U.S. dollar.
Investors see central bank policy mistakes as the second-biggest risk for markets, the BAML poll showed.
Projections from the Fed's March meeting suggest a benchmark rate of 2.1 percent at end of 2018. That implies a total of three rate rises this year. But some reckon four increases are possible.
"The focus is on how many times the Fed will raise rates this year and next and how much beyond the levels it considers as neutral to the economy, or what they call the longer-run rates," said Shuji Shirota, head of macro economic strategy group at HSBC Securities in Tokyo.
As the Fed meeting approached, the dollar traded flat against a basket of currencies giving up some earlier gains but stayed near three-week highs versus the yen.
It firmed sharply against some emerging currencies -- the Turkish lira fell one percent towards recent record lows
The euro eased off last week's three-week high of $1.1840 but remained underpinned by expectations the ECB will mention plans to wind up its stimulus and even hint at the timing of its first interest rate rise when it meets on Thursday.
However, Italian bond yields fell further with two-year yields down 14 bps to below 1 percent after EU affairs minister Paolo Savona, considered a eurosceptic, said the euro was "indispensable".
Such comments have soothed worries about Italy's euro membership, but analysts say the government's high-spending plans could boost yields again once the relief rally ebbs.
"In the longer term, they need to do something different to bring the deficit under control, not just pay lip service towards the euro," Commerzbank strategist Christoph Rieger said.
Britain's pound and bond yields slipped as data showing subdued inflation checked expectations for an interest rate rise this year.
Additional reporting by Hideyuki Sano in Tokyo, graphic by Helen Reid editing by Larry King and Alexander Smith