* China stocks slump 6 percent on eve of G-20 summit in Shanghai
* Volatile crude oil prices seesaw, though remain above lows
* European bourses bounce 1.3 percent after 4 pct drop in 2 days
* Dollar claws back ground against yen, sterling edges up
By Marc Jones
LONDON, Feb 25 (Reuters) - European shares bounced after two days of falls on Thursday and sterling steadied having been pounded all week by 'Brexit' fears, though a 6 percent drop in Chinese stocks fed concerns over its giant economy.
Wall Street looked set for a modest rise when it opens, as weekly jobless claims numbers and an early burst of reassuring manufacturing data soothed some of the pain of Wednesday's first contraction in services sector figures since 2013. FTSEurofirst 300 .FTEU3 had been due a rebound having lost almost 4 percent since Tuesday and it came through to the tune of almost 2 percent as risk appetite returned.
An overnight rise in oil helped lifted commodity firms .SXEP almost 4 percent, and solid results from British bank Lloyds LLOY.L and French insurer AXA AXAF.PA gave a much needed boost to the beleaguered financials sector. .SX7E
"At the moment the markets just feel like a chicken with its head cut off," said Saxo Bank's head of FX strategy, John Hardy.
"Everything is swinging around on the daily moves on oil. There was a pretty remarkable comeback by Wall Street yesterday despite some weak data so it feels like it's a bit dodgy till we get past the G20 meeting."
The earlier slump in Shanghai underscored the sense of caution over China ahead of Friday's G20 meeting there. Pressure is on the G20 leaders to get the global economy back on track and calm markets after one of the rockiest starts to a year on record.
The IMF called on Wednesday for those countries that still have money available to help boost growth and Chinese officials, speaking as G20 delegates started to arrive, moved to ease fears about another sharp drop in the yuan.
"We do recognise the risk the global economy faces," China's Deputy Finance Minister Zhu Guangyao said at a conference. "We also understand how important it is to correctly communicate with the market." sterling grabbed a much needed breather at $1.3985 GBP=D4 , having plunged 5 percent since early this month on fears that a public vote on June 23 could see it become the first country to quit the 28-member European Union.
Dealers said there were also signs of downward pressure building on the euro ahead of next month's European Central Bank meeting which is expected to see the bank cut rates again.
Euro zone long-term inflation expectations fell to record lows on Thursday, though there was a glimmer of hope as ECB data showed a small tick up in bank lending to firms. doubts also over whether the Fed can raise rates in March or indeed at all this year the dollar was struggling to make much headway at $1.1017 per euro EUR=EBS .
Speaking on CNBC St. Louis Fed President James Bullard added to that sense as he said the U.S. central bank's December rate hike may have spurred the recent sell-off in equity markets.
"I worry that we somehow signal that we are on a freight train path," Bullard added, saying December's rise had been misinterpreted as a commitment to carry on hiking this year.
OIL
The earlier slump in China, which was its biggest loss in a month, was coupled with another dip in the yuan though it failed to boost safe-haven plays as it has tended to do recently, with the yen JPY= and Swiss franc CHF= both falling against the dollar. /FRX
Crude oil prices were also unusually inactive. Brent LCOc1 was down 0.4 percent at $34.27 per barrel while U.S. West Texas Intermediate (WTI) crude CLc1 was down 0.8 percent from late Wednesday levels at $31.87 per barrel. O/R
Oversupply is currently so large that 1 to 2 million barrels of crude are produced every day above what actually used by the global economy.
"The basic overriding position in the oil market at the moment is that the global production exceeds global demand by quite a wide margin," said Ric Spooner, chief market analyst, CMC Markets.
Wall Street futures ESc1 pointed to a steady start for U.S. markets. .N In Asia overnight, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended down 0.5 percent following the China lurch lower .SSEC .CSI300 .
Japan's Nikkei stock index .N225 ended up 1.4 percent as bulls got the upper hand as the yen moved away from its recent highs against the dollar.
One of this year's best performing assets, gold XAU= , meanwhile erased early losses and rose about 0.7 percent to $1,237 an ounce, within sight of a one-year high of $1,260.60 reached on Feb. 11. GOL/
"The technical picture seems a bit changed and at the same time we don't expect rate hikes from the Fed anymore ... we expect gold to reach $1,300 by the end of the year," ABN Amro analyst Georgette Boele said.