* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
* MSCI ACWI flat
* S&P 500 futures
* Dollar hits 2-month high
* Sterling sinks to 28-month low on Brexit fears
By Ritvik Carvalho
LONDON, July 29 (Reuters) - Global shares steadied on Monday and the dollar hit a two-month high against a basket of currencies as markets counted down to a likely cut in U.S. interest rates this week, with much riding on whether the Federal Reserve signals more cuts will follow.
After opening lower, European shares began to gain. Deal-making and a rally in defensive sectors pushed the pan-European STOXX 600 index up 0.3% .
The dollar index - which measures it against a basket of peers - was higher by 0.1% and at its highest since May 31.
A stronger-than-expected U.S. gross domestic product report on Friday gave the dollar wings, leading some investors to doubt whether the Fed will continue easing this year after its Wednesday meeting.
Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday, with only a small chance of a half-point move.
More important will be what the central bank flags for the future, given the market implies 100 basis points of easing over the next year or so.
MSCI's All Country World Index of stocks, down by as much as 0.2% on the day, erased some losses to trade 0.02% lower. Wall Street futures were flat.
"Central banks are very much the focus of attention for markets at the moment," said Rupert Thompson, head of research at Kingswood.
Investors were also keeping an eye on U.S.-China trade talks. U.S. and Chinese negotiators meet in Shanghai this week for their first in-person talks since a G20 truce last month, but expectations for a breakthrough are low.
Data on the weekend showed profits earned by China's industrial firms contracted in June, fuelling concerns that the trade war will drag on economic growth.
"Both parties know they are running out of time to prevent a sharper slowdown in the global economy. However, given the past experiences, investor sentiment isn’t too high," said Hussein Sayed, chief market strategist at FXTM.
"While resolving their core issues seems far from reach at this stage, especially when it comes to China's subsidies and technology transfers, markets need at least a sign of goodwill to prevent a sharp, volatile reaction..."
In Asia, MSCI's broadest index of Asia-Pacific shares was half a percent lower. Japan's Nikkei dipped 0.2% and Shanghai blue chips 0.1%.
In bonds, euro zone bond yields dipped as jittery investors eyed the trade talks and waited for the likely Fed rate cut, after the European Central Bank's dovish signalling last week disappointed some.
The benchmark German 10-year Bund yield fell more than 1 basis point to -0.3920%, not far from last week's record low of -0.422%.
Elsewhere in currencies, sterling fell over half a percent to a 28-month low of $1.2301 amid reports the government of Prime Minister Boris Johnson was preparing the ground for a "no-deal" Brexit.
The euro was 0.1% lower at $1.111.
Spot gold was 0.1% higher at $1,419.58 per ounce.
Oil prices weakened amid pessimism over the U.S.-China talks and the prospect of slower economic growth globally that could reduce demand for crude.
Brent crude futures eased 0.41% to $63.20. U.S. crude lost 0.14% to $56.12 a barrel.
Reporting by Ritvik Carvalho; editing by Angus MacSwan, Larry King