GLOBAL MARKETS-Iran deal pulls oil lower, cheers shares

* Oil sinks on groundbreaking Iran nuclear deal

* Hopes of cheaper petrol boosts economic outlook

* World shares gain, Germany's DAX hits record high

* Disinflation pressures lift German bond yields

By Richard Hubbard

LONDON, Nov 25 (Reuters) - Oil prices fell on Monday and world shares were buoyed higher after Iran and six world powers sealed a deal to curb its nuclear programme, easing back on geopolitical tension.

Brent crude, a benchmark for world oil prices, shed over $2 a barrel, its biggest drop for more than three weeks, to trade around $108.70, although the deal means Iran won't be allowed to increase oil sales for six months.

"It's positive news, its clearly boosting equity markets today and in a broader sense its reflationary for the global economy," said Mike Ingram, market commentator at BGC Partners (NYSE: BGCA - news) .

European shares rose by 0.4 percent, extending last week's solid gains which took many of the region's indexes back to multi-year highs. Germany's DAX hit a fresh record high.

However, uncertainty over the region's economic outlook was still keeping liquidity levels low, with volumes likely to suffer further this due to the U.S. Thanksgiving holiday on Thursday and as the end of the month approaches.

MSCI (NYSE: MSCI - news) 's world equity index, which tracks shares in 45 countries, had gained 0.2 percent reflecting the firmer tone in Europe and gains across Asian share markets as news of the Iran deal emerged.

In Japan, a major oil importer, shares got an extra boost from the weaker yen to surge by 1.5 percent and have now gained almost 11 percent in little more than two weeks.

The Japanese currency had touched a sixth month low of 101.895 yen to the dollar as investors sold the currency to buy higher-yielding assets elsewhere.

DEFLATION SPECTER

However, much of the action in currency markets was in the euro against the yen, which has had a barnstorming run to reach four-year highs of 137.98 yen before settling back to around 137.65.

The euro's gains came even as European Central Bank Governing Council member, Christian Noyer, speaking in Tokyo, said rates could be cut further if necessary in the battle to ensure the euro zone does not fall into deflation. [ ]

A slowdown in inflation in the euro zone prompted the ECB to cut its main refinancing rate to a record low of 0.25 percent earlier this month.

ECB executive board member Benoit Coeure, also in Tokyo, warned disinflation - a fall in the pace of prices rises - in Europe could last for some time, though he expected the economic recovery and the widely-held outlook for inflation of about 2 percent meant deflation was unlikely.

However, the disinflationary implications of the Iran deal were cited by traders as the main reason for a fall European bond yields as these would usually tend to rise on a better growth outlook.

German 10-year yields were down 0.6 basis points to 1.747 percent, even as markets prepared for a sale of up to 4 billion euros of 10-year German debt on Wednesday.

"The current trend is for a decline in inflation so the focus will be on what will happen in terms of intervention from the ECB," ING rate strategist Alessandro Giansanti said.

COMMODITIES SINK

In the commodity markets prices moved lower, reflecting the greater attraction of equities and the dollar following the Iran deal.

Gold slid more than 1 percent to around $1,230 an ounce to reach its lowest level since early July.

Bullion was also weighed down by fears of an early end to U.S. stimulus measures and as holdings in the biggest gold-backed exchange-traded fund suffered the biggest drop in three weeks.

Copper had slipped 0.4 percent to $7,064.75 a tonne though this followed a rise of 1.2 percent last week, its biggest weekly gain in two months.