LONDON (Reuters) - World stock markets failed to make much headway on Monday as anxiety about malfunctioning credit and money markets persisted after signs the wider world economy may be suffering as a result.

With few indications of high one- and three-month interbank lending rates ebbing, investors and strategists focused on how much of an impact these higher rates would have on the availability of credit, and wider economic activity.

A shock 4,000 drop in U.S. August non-farm payrolls on Friday jarred investors by highlighting how weak the U.S. labor market was even as the money market hiatus emerged last month.

Stocks indices have lost up to 2 percent or more since the release. Data showing Japan's economy contracted more than expected in the second quarter compounded economic concerns.

The Federal Reserve is now widely expected to cut key interest rates at its September 18 policy meeting, with some expecting it to lop as much as 50 basis points off its 5.25 percent target rate for overnight funds.

"The market will be very nervous and risk aversion will prevail until the Fed delivers this rate cut," said Carole Laulhere, currency strategist at Societe Generale, Paris.

By 4:46 a.m. EDT, The FTSEurofirst 300 index was little changed at 1496.07 -- swinging back and forth across the breakeven mark for the session. The index lost 2.2 percent on Friday in the wake of the U.S. jobs report.

The VDAX-NEW, a measure of European equity market volatility, rose more than 4 percent to its highest since August 21.

S&P stock futures were shaping up for a steady open on Wall St after almost 2 percent was wiped off indices there on Friday.

Globally, the MSCI main world equity index was down 0.26 percent, adding to losses of more than 6 percent from its July record high.

Tokyo's Nikkei share average closed down 2.2 percent at a three-week low, with major exporters such as Sony leading the market lower.

MONEY LENDING HIATUS

The market upheaval, triggered by a year-old crisis in U.S. subprime mortgage debt, has sparked a sell-off in risky loans and bonds everywhere -- many of which have been held by investment vehicles set up by the world's leading banks.

With the ability of some of these vehicles to stay afloat now in doubt, banks have been hoarding cash as a contingency. The resulting lack of available funds on interbank markets has shoved interest rates above central bank targets.

While euro, sterling and dollar overnight lending rates <DM=> were broadly steady near central bank reference levels early on Monday, three month rates remained about a half percentage point or more above these levels.

The wider credit markets also remained nervous. The iTraxx Crossover index, the most closely watched indicator for European credit market sentiment, widened 5 basis points to 355 bps.

Top-rated government bonds such as U.S. Treasury or euro zone debt, which have been boosted by investors seeking safe havens recently, gave up some of Friday's gains.

The dollar, which set a 15-year low on Friday against a basket of major world currencies, steadied.

"It's a very, very nervous market. Trying to predict a one-day movement is a bit like trying to forecast a shoal of fish -- where one goes, everyone will go. But the moves are essentially random on days when there's very little news to go on," said Nick Parsons, chief market strategist at National Australia Bank in London.

STOCK MOVES

With credit markets stressed, the attempt to roll over some $113 billion of short-term commercial paper this week is expected to be an important gauge of the depth of this crisis.

The other major issue for investors is how much banks will be forced to write off and whether some will be forced to issue profit warnings during the third-quarter results season -- which starts next week for U.S. banks.

"We were told by the financial establishment that the impact from the turmoil in the subprime market would be very modest, but now with the job figures, one might suppose this is not the case," said Geert Ruysschaert, an analyst at Fortis Bank.

"You have a lot of speculation on banks' exposure to the crisis. There were rumors of a profit warning from Societe Generale but the CEO came out to calm investors."

Societe Generale, France's second-biggest listed bank, said on Monday its financial targets for 2007-2008 were unchanged despite experiencing difficult market conditions in August.

London Brent crude fell 62 cents to $74.37 per barrel. Gold <XAU=> hovered close to Friday's 16-month peak.

(Additional reporting by Hugh Lawson in Tokyo, Blaise Robinson in Paris, Toni Vorobyova in London)