* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
* Tech worst-performing sector in European trading
* Highly-valued sector the worst hit by broad sell-off
* German bond yields fall as investors move to safe assets
* Lower metals prices weigh
By Helen Reid
LONDON, Dec 6 (Reuters) - Tremors in tech stocks spread to Europe on Wednesday, with weaker metals prices also tripping up a rally in world stocks which had taken them to record highs.
Investors concerned about high valuations took the top off the tech sector, where stocks such as Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL), Tencent and Alibaba (NYSE:BABA) have reached prices some describe as "eye-watering".
Europe's main index of stocks .MSER tumbled 0.7 percent, led by chipmakers which have been a crucial driver of growth in the sector and seen stellar share price gains this year.
Ken Hsia, European equities portfolio manager at Investec Asset Management, said he had shifted positioning this year from tech into other sectors including financials which he thought would gain from higher yields and fiscal shrinking.
"Their valuations needed something more heroic in terms of the earnings growth they were reporting, and we sold some and rotated that into other parts of the market," he said.
Another negative for the tech sector was a detail of the U.S. tax cut bill being debated in Congress limiting the scope of tax credit key for research and development.
MSCI's world equity index .MIWD00000PUS , which tracks shares in 47 countries, slipped 0.3 percent, still holding near its latest record high hit a week ago.
U.S. market volatility .VIX was up again in early trading, its eighth day of gains in the last ten sessions as investors grew more jittery about stock markets driven to pricey levels by widespread enthusiasm about the economy.
"We really don't see great bargains in any market right now with the U.S. trading at 18.2x price to earnings and 14 percent above its average, and Europe at 15.1x, 10 percent ahead of the average," said Jefferies analysts in a note.
European markets mirrored Asian trading where MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 1.5 percent to a two-month low as weaker metals prices and monetary policy concerns in China soured sentiment.
The dollar's rise on U.S. tax reform hopes has dented base metals which are denominated in the currency.
Copper prices CMCU3 recovered slightly in early London trading, up 0.1 percent having hit a two-month low, but European mining stocks .SXPP fell 1.1 percent.
Perceived geopolitical risks also loomed as U.S. President Donald Trump was due to recognise Jerusalem as the capital of Israel later on Wednesday, a move the Palestinians' chief envoy to Great Britain said was "declaring war". euro zone debt markets, German 10-year government bond yields DE10YT=RR were close to three month lows on Wednesday as risk-off sentiment drove investors into safer assets.
The two-year Treasury yield US2YT=RR fell slightly but still hovered near the nine-year high it's been driven to by the Fed's monetary tightening plans and hopes tax reform will boost the economy.
The 10-year Treasury yield US10YT=RR also declined, helping the yield curve steepen slightly from its decade low. The flattening yield curve has obsessed investors concerned it may be a sign of imminent market stress.
"At the moment it is a market signal to watch and interpret, should the Fed start moving aggressively however it will become key to assessing the market's longer term economic view," said Edward Park, investment director at Brooks Macdonald.
The dollar dipped slightly, weighed by lower long-term U.S. yields. The dollar index against six major currencies slipped 0.05 percent to 93.340 .DXY .
Sterling slipped to $1.3402, down 0.3 GBP=D3 as Prime Minister May came under pressure from opposition parties and EU diplomats after Brexit negotiations hit an impasse. euro was little changed, up 0.03 percent at $1.1828 EUR= after shedding 0.35 percent the previous day.
Bitcoin continued its dizzying ascent, hitting a fresh record high of $12,450.79 on the BitStamp exchange BTC=BTSP . The cryptocurrency is up more than 1,190 percent so far in 2017.
In commodities, U.S. crude oil futures CLc1 were down 0.4 percent at $57.38 per barrel after American Petroleum Institute data showed that U.S. gasoline stocks and distillate inventories rose more than expected last week. O/R
Brent crude LCOc1 lost 0.3 percent to $62.66 per barrel.
Emerging stocks .MSCIEF hit a two-month low in early trading, having been bruised by rises in the dollar earlier this week.
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