* Crude falls, gives up earlier gains
* European stocks open down, track Asia
* Sterling hit as PM Theresa May's pre-election poll lead shrinks
* G7 leaders to hold two days of talks in Sicily
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh (Updates throughout)
By Dhara Ranasinghe
LONDON, May 26 (Reuters) - Oil prices see-sawed on Friday after OPEC extended cuts in oil production but disappointed investors by not going further, while sterling slid after a poll showed the ruling Conservatives' lead shrinking two weeks before an election.
European stocks fell as turbulence in oil markets and the prospect of tough talks at a meeting of G7 leaders met in Italy undermined risk appetite.
Asian shares also fell, while U.S. stock futures slipped .
British stock markets , however, bucked the trend and hit record highs, with a selloff in sterling seen boding well for exporters.
Britain's pound tumbled 0.8 percent to a three-week low of $1.2834 and hit its lowest level in two months against Europe's single currency.
The first opinion poll since a suicide bombing killed 22 people indicated Britain's opposition Labour Party had cut the Conservative Party's lead to five points with less than a fortnight to go to the parliamentary election.
Prime Minister Theresa May has said a big win would strengthen her hand in Brexit negotiations.
"With this kind of momentum and almost two weeks to go until the vote, not only is this not going to be the breeze that May anticipated when she called the snap election last month, it could yet turn into a humiliating defeat for the Conservative leader and her party," said Craig Erlam, senior market analyst at OANDA.
"It's turning into a rotten end to the week for the pound."
With the exception of London's FTSE, most major European bourses were down more than 0.5 percent .
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
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan, which closed at a two-year high on Thursday, fell 0.2 percent, shrinking its weekly gain to 1.45 percent. Japan's Nikkei closed 0.6 percent lower.
Oil prices initially recovered some ground after tumbling 5 percent on Thursday, before falling back.
On Thursday in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to extend a cut in oil production by nine months until march 2018 as they grapple with a supply glut. But that disappointed investors betting on longer or larger curbs.
Brent crude futures were at $50.84 per barrel at 1215 GMT, reversing earlier gains to trade 1.2 percent lower on the day. They were on track to end Friday with a weekly loss of just over 5 percent.
U.S. West Texas Intermediate (WTI) crude futures were below $50, at $48.29, down 1.2 percent on the day.
Meanwhile, analysts said there was caution in the markets ahead of a meeting of leaders from the world's richest economies that was expected to expose deep divisions with U.S. President Donald Trump over trade and climate change.
The G7 summit comes after Trump criticised military spending by the United States' NATO allies and condemned German trade policies a day earlier.
"If the G7 meeting breaks out in a row, which is possible, then that's not going to set us for a good Monday when UK markets are closed and liquidity is dampened," said Steve Barrow, head of G10 strategy at Standard Bank in London.
"So if I was an investor here I would not want to dip a toe into risk assets in case we get something out of the G7 that could be a bit unsavoury."
The dollar slipped 0.8 percent to 110.90 yen, while the dollar index, which tracks the greenback against a basket of six major peers, was 0.2 percent lower at 97.080. The euro was a touch firmer at $1.1223.
The weaker dollar and pullback in risk appetite were a boon for gold. Spot gold rose 0.8 percent to $1,265.88 an ounce.
Safe-haven government bond yields also fell, with U.S. Treasury yields down 2 basis points at 2.23 percent.
A gauge of U.S. bond market volatility fell to its lowest level since 2014, after signals from the U.S. Federal Reserve this week that it will go slow with interest-rate hikes and winding down the more than $4 trillion of debt securities amassed as part of efforts to stimulate the economy. (Additional reporting by Nichola Saminather in Singapore; Editing by Kevin Liffey and Richard Lough)