By Sujata Rao
LONDON (Reuters) - World stocks steadied above 10-day lows on Monday, with investors holding back from making aggressive bets as tensions between Russia and the West over Ukraine showed no sign of easing.
MSCI's world equity index <.MIWD00000PUS> was flat after falling 0.7 percent on Friday.
Markets, especially in Asia, had earlier been hit by signals that Chinese authorities are unlikely to support the economy with more stimulus, but European stocks drew support from merger moves and upbeat results in the pharmaceutical sector.
The tensions over Ukraine boosted Brent oil prices above $110 a barrel, near a seven-week high, and prompted some investors to seek safety in assets such as the yen, which was close to one-week highs against the dollar.
U.S. President Barack Obama announced new sanctions against some Russians on Monday to stop President Vladimir Putin from fomenting the rebellion in eastern Ukraine.
Obama said he was holding broader measures against Russia's economy "in reserve". The European Union is expected to add targets to its Russia sanctions list later.
Pro-Moscow rebels have seized public buildings in Ukraine's east and are holding several international monitors hostage in the city of Slavyansk.
"Events in the Ukraine are expected once again to take center stage this week," said Markus Huber, senior analyst at Peregrine & Black.
"Traders will closely watch today how negotiations continue to proceed concerning the release of the captured Western observers and the new sanctions."
European stocks (.FTEU3) rose 0.4 percent, thanks to a 15 percent jump in AstraZeneca (AZN.L) after U.S. drugmaker Pfizer (PFE.N) said it wanted to buy its smaller British rival in a deal potentially worth more than $100 billion.
Shares in Bayer (BAYGn.DE) jumped 4.7 percent after posting forecast-beating quarterly results.
"Thanks to central banks' massive (provision of) liquidity, a lot of companies are now looking for takeover targets across the board, which is very positive for the market," said Lionel Jardin, head of institutional sales at Assya Capital in Paris.
Expectations of merger-related inflows also helped sterling to a new 4-1/2 year high.
OIL GETS BOOST
Emerging stocks (.MSCIEF) slumped to a one-month low, led lower by Shanghai and Moscow.
Investor sentiment towards China took a hit after state media reported President Xi Jinping as saying current fiscal and monetary policies would basically remain unchanged following a Politburo meeting on Friday.
Russian stocks fell more than 1 percent (.MCX) before recovering, while the cost of insuring Russian debt against default hit its highest since November 2011 as concerns grew that new U.S. sanctions would hurt the already flagging economy.
"With the Russia-Ukraine crisis rumbling on, affecting financial markets in both emerging and developed economies, investors are apt to ask for how long it will continue," SEB analyst Per Hammarlund said.
"If (Putin) continues to pursue this tactic (of supporting rebels from outside) the implications are that the process will be drawn out for global markets."
The dollar pulled back against a basket of six major currencies (.DXY), touching a two-week low ahead of a meeting of the Federal Reserve which is expected to see the central bank cut another $10 billion from its monthly bond-buying plan.
The euro rose to two-week highs against the dollar before mid-week data that is expected to show inflation ticking higher, easing pressure on the European Central Bank to loosen monetary conditions in the near term.
On bond markets, Slovenian 10-year bond yields jumped 22 basis points to 3.91 percent after Prime Minister Alenka Bratusek lost a vote for the leadership of her center-left party, Positive Slovenia.
German Bund futures fell 10 ticks.
(Additional reporting by Blaise Robinson and Atul Prakash; Editing by Catherine Evans)