* FTSE 100 retreats, European stocks flat

* Oil down 1 pct, sterling steadies after Brexit shock

* PBOC willing to let yuan fall further this year

* YTD asset performance: http://reut.rs/2938RL0

By Vikram Subhedar

LONDON, June 30 (Reuters) - Global stocks were set for their worst monthly performance since January, with renewed concerns over global growth forcing European shares and oil prices onto the back foot again following two positive sessions.

The MSCI All-Country World index was little changed on the day, but is set to end the month down 2.5 percent, its worst month since a troubled start to the year.

Worries that a weaker Chinese yuan could spark deflation, seen as a key reason for the worst beginning to the year for global stocks, were reignited after Reuters reported that China's central bank was willing to let the currency fall further.

"Since the beginning of the year investors have faced a series of macro changes to the investment landscape," said Sean Darby, chief global equity strategist at Jefferies, adding that Britain's decision to leave the European Union last week was only the most recent shock to investor confidence.

The two-day selloff in the aftermath of last week's vote wiped more than $3 trillion off the value of global stocks.

"No doubt global growth will take a short term hit, but it is not going to result in a credit crisis," said Darby.

Bond markets see Brexit as another significant blow to the world economy with German and Japanese benchmark 10-year government debt yields both falling to historic lows below zero over the past week.

On stock markets, European shares were flat, while the FTSE 100 was off 0.1 percent in early trading with financials the biggest drag on both indexes.

Shares of UK and European banks, a centre of concern since Britain shocked global financial markets on Friday, have been the hardest hit during the recent sell-off and are the worst performing sectors this year in their respective markets.

In currencies, sterling was up 0.2 percent, putting distance between a 31-year trough of $1.3122 touched on Monday. It has still lost more than 6 percent in the quarter.

The euro, another casualty in the days after Brexit, fetched$1.1111 after reaching $1.0912 on Friday, its lowest since March.

Crude oil prices retraced some of their gains from Wednesday's sharp rally as fears over strike outages in Norway abated.

Brent crude fell 0.9 percent at $50.10 a barrel after jumping more than 4 percent overnight, thanks to a larger-than-expected drawdown in U.S. crude inventories.

Oil has mostly recovered what it lost after the Brexit shock. For the quarter, Brent has risen 26 percent on hopes that declining production in some countries would ease a global glut.

(Editing by Alexander Smith)