* World shares drop as Italy, global growth worries weigh
* Italian shares weaken, bond yields gain on political stalemate
* Euro dips as talk of ECB rate cut gains strength
* Fiscal concerns send U.S. oil to $90.50 a barrel
By Richard Hubbard
LONDON, March 4 Political stalemate in Italy and China's plans for tighter controls on its property sector added to concern about slower global growth on Monday, pushing world shares lower.
The euro also weakened, with the poor growth outlook increasing expectation that the European Central Bank could cut interest rates to boost the region's economy.
On Wall Street stocks were poised to open lower after $85 billion in government spending cuts began to take effect, although signs of a compromise among lawmakers to ease their impact offered some support.
A lack of progress in talks to form a new Italian government after last week's inconclusive elections weighed most on the country's stocks and bonds, with 10-year bond yields up three basis points at 4.82 percent.
Analysts said the falls would have been steeper but for European Central Bank's promise to support struggling nations but there remained doubts over how this could be implemented without a government able to enact tough reforms.
"If the Italians don't have a government (ECB president Mario) Draghi, who said he would do whatever it takes, can't help them," said Alastair Winter, chief economist at Daniel Stewart.
The uncertainty in Italy has caused investor sentiment across the euro zone to fall sharply in March, according to the latest Sentix index, ending a six month trend of improvement that had fuelled hopes of a region-wide recovery.
The weaker sentiment coupled with recent data pointing slow growth ahead for the 17-nation euro area has increased speculation the ECB may cut rates at its meeting on Thursday, keeping the common currency weak.
"Draghi could be more dovish and there could be a rate cut this week. If not, he could signal something is in the offing," said Jane Foley, senior currency strategist at Rabobank.
The euro was down 0.1 percent at around $1.30, just above Friday's 11-week low of $1.2966.
Meanwhile Britain's pound fell to near a 2-1/2 year low against the dollar at just above $1.50 after a weaker-than-expected survey of British construction activity added to evidence the economy may be sliding into another recession.
The data has increased the likelihood that Bank of England Governor Mervyn King will get his wish for additional monetary stimulus at this week's policy setting meeting.
"The construction PMI today was quite weak, but the really big one is the services PMI which comes tomorrow and if that comes in weak as well it would increase the possibility of further action at this week's BoE meeting," said Ian Stannard, Head of European FX Strategy at Morgan Stanley.
The latest slide left sterling trading at $1.5052, just above Friday's July 2010 low of $1.4998.
Currency markets were also looking ahead to rate-setting meetings being held by central banks in Japan, Canada and Australia as evidence mounts of weaker global growth.
The central banks will be considering data which, while still pointing to modest global growth in 2013, has pointed to ongoing weakness in Europe and slower activity in China.
On Sunday China reported that its increasingly important services sector expanded at the slowest pace in five months in February, reinforcing the view that the recovery in the world's second-largest economy remains modest. China's factory growth also cooled to multi-month lows in February.
The recent run of weak data has weighed on all the major riskier asset markets, which had gained sharply at the start of the year on hopes of a gradual global economic recovery.
"The worry is, given how much markets have rallied in January and February, we might now have an excuse to take money off the table," said Alpesh Patel, a founder of fund managers Praefinium Partners.
The less rosy economic outlook sent MSCI's world equity index down around 0.2 percent on Monday at the start of its fifth consecutive week in the red.
European shares were 0.4 percent lower at midday led by a 2.3 percent fall in mining stocks, which are most exposed to changing in the growth outlook. London's FTSE 100 index, Paris's CAC-40 and Frankfurt's DAX were around 0.4 percent lower.
The political stalemate in Italy, and all the economic worries have supported safe-haven safe haven assets with U.S. bond prices inching up in Europe.
The 10-year U.S. Treasury note rose 2/32 in price to yield 1.839 percent, not far from a one-month low of 1.836 percent set last week.
German government bond futures were around 2 ticks higher at 145.53, having hit a 2013 high of 145.80 earlier in the day, on top of gains of almost two full points last week.
Meanwhile concerns about the negative economic impact from the U.S. spending cuts weighed on U.S. crude, which fell 0.15 percent to $90.50 a barrel. Brent was little changed at $110.50.
President Barack Obama and Congress remain deadlocked over how to resolve the latest fiscal crisis although there were signs a compromise was being worked on.
Republican leaders on Sunday promised moves to avoid a government shutdown on March 27, when funding runs out for most federal programs while President Obama raised anew the issue of cutting entitlements which has been a key stumbling bloc.