* World shares steadied a day after biggest gains in over two months
* European stocks slip as Moody's scraps France's top-notch rating
* U.S. stock set to shed some gains as 'fiscal cliff' in focus
* Oil and gold mostly steady as deal on Greece awaited
By Richard Hubbard
LONDON, Nov 20 (Reuters) - World shares and the euro steadied on Tuesday after an initial fall in reaction to France losing its top-notch credit rating from Moody's, with shares maintaining sharp gains from the previous day as investors await a deal for Greece.
Euro zone finance ministers and the International Monetary Fund meet later in the day and are expected to approve a plan to give Greece 44 billion euros ($56.4 billion) in aid by December 5, which is needed to stave off bankruptcy.
The likely resolution of the short-term funding problems for Greece and optimism that U.S. lawmakers would reach a deal to avert automatic tax hikes and spending cuts have been behind a sharp rally in riskier assets this week.
MSCI's world equity index gained 2 percent on Monday to post its best day since July 27, and held onto those gains by the mid session on Tuesday to be virtually unchanged at around 326.60 points.
U.S. stock futures pointed to a slight retracement when trading resumes on Wall Street but this comes after the broad S&P 500 added over 2 percent in the last two sessions.
Attention in the United States is likely to be firmly focussed on efforts by Congress to reach a compromise to avoid $600 billion in tax increases and spending cuts due to start in January, widely referred to as the "fiscal cliff".
"The fiscal cliff is the main headline and that will be what will lead the markets for the next couple of days, particularly with a short week in the U.S.," said Brenda Kelly an analyst at IG Markets. U.S. markets will close on Thursday for the Thanksgiving annual holiday.
Investors are also waiting to hear from the Federal Reserve Chairman Ben Bernanke, who speaks before the Economic Club of New York at 1715 GMT, as he may offer fresh insight in the central bank's appetite for more monetary stimulus.
In European markets, a widely-expected decision by Moody's to cut the triple-A rating of Europe's second largest economy by one notch and keep it on a negative outlook prompted some early selling in both equity markets and the single currency.
The change brought Moody's into line with Standard & Poor's, which stripped France of the top rating in January. Fitch Ratings still assigns France its highest AAA grade.
The FTSEurofirst 300 index of top European shares fell 0.2 percent to 1,089.30 points, having surged 2.3 percent on Monday, with the main French index, the CAC-40, down 0.3 percent.
Other markets were less affected with Germany's DAX gaining 0.25 percent and London's FTSE 100 edging down 0.2 percent due mainly to weakness in financial stocks.
French government bond yields and the cost of insuring the country's debt against default did edge higher on the rating downgrade, but the reaction was limited as investors wait to see if the country's problems will worsen.
"More and more people are talking about French (economic) underperformance and structural issues as a theme going forward into next year," said Philip Tyson, a strategist at ICAP. "So it's something that could gather momentum, particularly if we see the economy weaken substantially."
Ten-year French government bond yields were two basis points higher at 2.097 percent and five-year credit default swaps on the country's debt also gained two basis points and have now risen by about 30 basis points since late November.
Safe haven German government 10-year bond yields, which usually fall when euro zone worries escalate, were up three basis points at 1.39 percent.
Benchmark U.S. Treasury note yields rose 1.7 basis points to 1.63 percent, pulling away from the 2 1/2-month low of 1.556 percent hit last Friday when investors were most worried about the looming fiscal cliff.
The single currency was close to flat on the day at $1.2810 as the cautious optimism that euro zone ministers would release funds to debt-ridden Greece offset the cut in France's credit rating.
The dollar also held steady against a basket of key currencies but gained 0.2 percent against the yen to 80.87 yen, after the Bank of Japan, as expected, took no fresh action after its two-day policy meeting ended on Tuesday.
Brent crude traded above $111 a barrel, less than a dollar away from a one-month high in the previous session, on hopes over the U.S. budget crisis that pushed up equity prices on Monday, and on supply worries from the Middle East.
"The overnight rally in the U.S. equity market is still supporting the oil market, with ongoing tension in the Gaza Strip posing some geopolitical risks," said Natalie Rampono, a commodity strategist at ANZ.
U.S. crude futures eased 25 cents to $89.03.
Spot gold was nearly flat at $1,732.59 an ounce and is expected to stay within a tight range between $1,700 and $1,740 until the U.S. budget dispute is resolved.