* Oil falls as Qatar rift threatens output cuts
* Sterling recovers as investors focus on election
* Wall Street stocks dip after falls in oil, European market
* Thursday's ECB meeting keeps lid on euro zone bond yields
* Gold hits six-week high after Friday's U.S. jobs report
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh (Changes dateline to New York; adds Wall Street open; updates throughout)
By Hilary Russ
NEW YORK, June 5 (Reuters) - World equity markets dipped with oil prices on Monday amid concerns a diplomatic rift among some key Middle Eastern energy producers may weaken a pact on output cuts, while sterling firmed as investors focused on the impending British election.
The U.S. dollar edged up off seven-month lows hit on Friday after a weaker-than-forecast jobs report as U.S. Treasury yields rose and markets signaled they expected the Federal Reserve to raise interest rates next week. U.S. stock indexes were little changed to lower as investors mostly shrugged off weekend attacks in London and after Arab states cut ties with Qatar over alleged support for Islamist and Iran. O/R .N Dow Jones Industrial Average .DJI was flat at 21,205.88, the S&P 500 .SPX lost 1.45 points, or 0.06 percent, to 2,437.62 and the Nasdaq Composite .IXIC dropped 1.79 points, or 0.03 percent, to 6,304.00.
In the Middle East, Qatar's main stock index .QSI fell more than 7 percent after Saudi Arabia - the world's biggest crude oil exporter - the United Arab Emirates, Egypt and Bahrain cut ties with Qatar, accusing the Gulf Arab state of supporting terrorism. is the world's biggest supplier of liquefied natural gas (LNG) and a major supplier of condensate.
Brent crude oil LCOc1 , the international benchmark, rose more than 1 percent at one point, recouping some of last week's 4 percent losses, but turned tails to drop back below $50 a barrel.
It was last at $49.16, down 1.58 percent, with U.S. crude CLcv1 falling 1.45 percent to $46.97 per barrel.
"I think it's still going to be a bit of a debate on the true impact it can have on the oil market," said Olivier Jakob, strategist at Petromatrix.
"In terms of oil flows it doesn't change very much but there is a wider geopolitical impact one needs to consider," he said, adding that a breakdown in relations between Qatar and Saudi Arabia could hamper an OPEC-led deal on production cuts.
Britain's pound GBP=D3 initially fell half a cent against the dollar after the third militant attack in Britain in less than three months but recovered and last traded at $1.2924, up 0.24 percent.
Prime Minister Theresa May said Thursday's election would go ahead. Opinion polls in the past week have put her Conservatives ahead, though with a narrowing lead over the Labour opposition.
"Even if May does just about enough to increase the majority - that could still potentially be sterling positive," said ING currency strategist Viraj Patel.
The dollar index .DXY rose 0.12 percent, having hit its lowest since Nov. 9 after Friday's report showing the U.S. economy added fewer jobs than expected last month. Unemployment, however, fell to a 16-year low of 4.3 percent. mid-morning trading, U.S. 10-year Treasuries US10YT=RR were last down 4/32 in price, with yields at 2.173 from 2.159 percent late on Friday.
Markets see a 94 percent chance of the Federal Reserve raising interest rates by a quarter point at its June 13-14 meeting.
European Central Bank policymakers meet this week. They are expected to take a more benign view of the euro zone economy and discuss dropping pledges to ramp up economic stimulus if needed, sources with direct knowledge of the discussions told Reuters last week. euro EUR= fell 0.27 percent to $1.1249 and the Japanese yen weakened 0.05 percent versus the greenback at 110.46 per dollar.
Gold XAU= hit a six-week high of $1,282 an ounce, with traders citing the U.S. jobs report and reduced prospects of aggressive Fed rate increases. It last traded at $1,281.01.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
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