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GLOBAL MARKETS-Wall Street keeps selling as world assets fail to recover

(Updates to midday U.S. trading)

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U.S. equity and global indexes negative, giving up early gains

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Dollar holds gains after touching 20-year highs Monday

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Oil rallies from Monday's nine-month lows

By Lawrence Delevingne

Sept 27 (Reuters) -

U.S. stocks gave up early gains to fall deeper into a bear market on Tuesday, while sterling steadied a day after hitting a record low, as investors remained nervous about a potential global recession.

The pound was little changed at $1.067 after sterling collapsed to $1.0327 on Monday on concern over the funding of recently announced UK tax cuts, which follow huge energy subsidies.

The Bank of England said late on Monday it would not hesitate to change interest rates and was monitoring markets "very closely." BofE Chief Economist Huw Pill added on Tuesday that BofE was likely to deliver a "significant policy response" to last week's announcement but it should wait until its next meeting in November before making its move.

The yield on five-year gilts rose as much as 100 basis points in two trading days, but was down about 1% on Tuesday.

U.S. stocks faltered after a morning bounce. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all declined less than 1%.

The S&P benchmark index fell more than 20% from its early January high to a low on June 16,

confirming a bear market

. The index then rallied into mid-August before petering out.

"We don't see a quick retrenchment or a return to 2% inflation, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations," Tony DeSpirito, BlackRock's chief investment officer for U.S. Fundamental Equities, wrote in a note released on Tuesday.

Markets see a 70% probability of a further 75 basis points move at the next U.S. Federal Reserve meeting in November.

The Fed needs to raise interest rates by at least another percentage point this year, Chicago Fed President Charles Evans said on Tuesday, a more aggressive stance than he has previously embraced that underscores the central bank's resolve to quash excessive inflation.

Other central bank speakers due on Tuesday include Fed Chair Jerome Powell and European Central Bank President Christine Lagarde.

"Central bankers have been walking a tightrope trying to curb inflation while attempting to limit recessionary risks," Bank of America strategists wrote in a note released Tuesday.

"However, their recent tone and 'jumbo' rate hikes have reinforced that the foremost priority is controlling inflation, even at the potential cost of a recession."

GLOBAL CONTAGION

Spillover from Britain kept other assets on edge.

The MSCI world equity index reversed early gains on Tuesday, falling about 0.4% to a near two-year low early Tuesday afternoon. European stocks slipped 0.1%.

MSCI's broadest index of Asia shares outside Japan hit a fresh two-year low and was flat on the day. Japan's Nikkei gained about 0.5%.

Bond selling in Japan pushed yields up to the Bank of Japan's ceiling and prompted more unscheduled buying from the central bank. The German 10-year bond yield briefly hit a nearly 11-year high of 2.142% before easing.

Benchmark U.S. 10-year Treasury yields rose to their highest in more than 12 years as investors braced for higher interest rates.

The dollar held gains on Tuesday in its relentless rally while sterling, the euro and Japanese yen regained little ground from multi-year lows after unusually volatile trading in recent sessions.

Oil rallied after plunging to nine-month lows in the previous session, helped by supply curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian and by a slightly softer dollar.

U.S. crude rose 1.28% to $77.69 per barrel and Brent was at $85.37, up 1.56% on the day.

Dutch and British gas prices rose on news that the Nord Stream gas pipeline from Russia to Europe had suffered damage, raising concerns over the security of the bloc's energy infrastructure and making a swift resumption in flows through the pipeline even less likely.

Gold, which hit a 2-1/2 year low on Monday, rose around 0.6% to $1,631.5 an ounce.

Bitcoin briefly broke above $20,000 for the first time in about a week, as cryptocurrencies bounced, along with other risk-sensitive assets.

(Reporting by Lawrence Delevingne in Boston and Carolyn Cohn in London; Additional reporting by Xie Yu in Hong Kong; editing by Jonathan Oatis and Richard Chang)