By Marc Jones

LONDON (Reuters) - Cooling U.S. rate hike expectations helped world shares notch up solid gains on Monday, though they came off highs as investors concluded an oil market pact between Saudi Arabia and Russia lacked substance.

Oil surged as much 5 percent on news the two mega producers had signed a deal to stabilise the market, including limiting output, but pared gains as the agreement led to no immediate action.

European stocks whipsawed in tandem, touching an eight-month high then reversing as trading wound down in the absence of U.S. markets, which were shut for a public holiday. [.N]

"Freezing production is one of the preferred possibilities," Saudi Energy Minister Khalid al-Falih said speaking alongside Russian counterpart Alexander Novak at the G20 summit in China. "But it does not have to happen specifically today."

Despite the wobbling around in Europe, MSCI's 46-country 'All World' share index held for a gain of 0.2 percent after a strong day for Asian markets.

Bonds were back in favour after payrolls numbers on Friday had tamed bets on a U.S. rate hike this month, while emerging market stocks were gunning for their best day since July with a jump of 1.3 percent. [EMRG/FRX]

"We don't expect the Fed to do anything until next year so that lays the ground for further advances," said TD Securities strategist Paul Fage.

Though the Fed reaction and oil price swings were the markets' main drivers, they were not the only factors in play.

The yen turned around its recent losing streak as the head of the Bank of Japan disappointed investors who had expected clearer signals that Tokyo's monetary policy would be eased further this month.

Bank of Japan Governor Haruhiko Kuroda signalled its already massive stimulus programme would continue, but there was nothing explicit enough to suggest an expansion is imminent. Later Japan PM Shinzo Abe said he trusted Kuroda to "take the right steps".

The dollar dropped 0.6 percent to 103.35 yen having gained more than 4 percent against the Japanese currency in the last six trading days.

Britain's pound also dented the greenback, hitting a one-month high of 1.3360 as data showed the UK services industry bounced back strongly from the seven-year low that followed the vote to leave the European Union.

"It remains too early to say whether August's upturn is a ...the start of a sustained post-shock recovery," IHS Markit economist Chris Williamson said. "But there's plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate."


Oil's volatile ride was its second hectic session in a row with the Saudi/Russia pact fanning speculation that major producers could strike a firmer deal in Algeria later this month.

Brent crude futures for November delivery were up 71 cents at $47.54 a barrel having been as high as $49.40, and U.S. crude for October delivery was up at $45.15 having been as high as $46.53.

"Verbal intervention was again needed to trigger a recovery towards $50," senior ABN Amro economist Hans van Cleef said, referring to the Saudi and Russian comments.

Also at the G20 meeting, the United States and Russia agreed to cooperate more closely to fight terrorism. China and Japan agreed to improve relations too, but still lectured each other over maritime rows that remain a recurrent flashpoint.

In Asia overnight, MSCI's broadest index of Asia-Pacific shares outside Japan ended up 1.6 percent, while Japan's Nikkei rose 0.7 percent to its highest close since May 31.

After Friday's underwhelming U.S. jobs report, Fed Funds futures prices indicated investors were now pricing in only around a 20 percent chance of a September hike, down from over 30 percent beforehand. The chance of one by year-end remains at more than 60 percent.

(Additional reporting by Ahmad Ghaddar in London; Editing by Jeremy Gaunt and John Stonestreet)