GLOBAL MARKETS-Stocks, oil fall on China concerns, Fed uncertainty

* European shares head for worst month in four years

* China worries, Fed outlook spook investors

* Dollar loses ground against basket of currencies

* Oil drops (Updates with U.S (Other OTC: UBGXF - news) . market opening levels, changes byline, dateline, previous LONDON)

By Caroline Valetkevitch

NEW YORK, Aug 31 (Reuters) - World stock indexes fell while oil prices dropped on Monday amid persistent investor concerns about slowing growth in China and the prospect of higher U.S. interest rates.

The dollar eased as weaker stock markets prompted investors to trim bets against currencies popularly used to fund risky carry trades.

But the dollar's losses were limited by weekend comments from Federal Reserve policymakers that left the door open to a U.S. rate rise as soon as next month. The U.S. dollar index, which measures the greenback against a basket of currencies , was down 0.1 percent.

Fed Vice Chairman Stanley Fischer said in a speech at the annual Jackson Hole, Wyoming, central bankers' symposium that U.S. inflation was likely to rebound, allowing rates to rise gradually.

U.S. stocks started the week down on the rate outlook jitters, extending recent market volatility.

"The market turmoil will continue in the near future. China is the catalyst, but the real reason for the selloff is the nervousness about the first U.S. rate hike," KBC senior economist Koen De Leus said.

At 10:30 a.m. (1430 GMT), the Dow Jones industrial average was down 114.72 points, or 0.69 percent, to 16,528.29, the S&P 500 had lost 13.24 points, or 0.67 percent, to 1,975.63 and the Nasdaq Composite had dropped 28.79 points, or 0.6 percent, to 4,799.53.

The pan-European FTSEurofirst 300 stocks index fell 0.3 percent and, even though it has recouped all of last week's losses, was on track for its worst monthly performance since August 2011. Germany's DAX was down 0.6 percent.

Brent crude oil fell back below $49 a barrel after its biggest two-day rally in six years last week.

Chinese shares had another volatile session. The CSI300 index ended up 0.7 percent, after falling 4 percent at one point. The index was still down 11.8 percent for August.

FED UNCERTAINTY

The uncertainty about when the Fed might raise rates kept yields on German government bonds, the euro zone benchmark, close to last week's highs. Ten-year yields were marginally higher at 0.74 percent.

In the U.S. bond market, benchmark 10-year Treasuries notes were up 9/32 in price to yield 2.154 percent.

In the oil market, Brent was down $1.07 a barrel at $48.98 and, despite last week's gains, heading for its fourth consecutive monthly decline. U.S. crude was down 87 cents at $44.35.

Gold (Other OTC: GDCWF - news) struggled over the Fed outlook, trading around $1,131.80 an ounce. (Additional reporting by Nigel Stephenson, Anirban Nag, John Geddie, Atul Prakash and Jan Harvey in London; Editing by John Stonestreet and James Dalgleish)