* Worries over U.S. economy again weigh on markets
* Nikkei down 3.6 pct, for biggest drop since June
* Leading European stocks fall 1.2 pct in early trade
* Government bonds rise as move to havens continues
* Yen up 4th straight month, no intervention seen for now
(Repeats to more subscribers)
By Kevin Plumberg
TAIPEI, Aug 31 (Reuters) - Fears that policymakers around
the world will be slow to support the flagging global recovery
lifted the yen on Tuesday, weighed on Asian and European stocks
and gave further fuel to a five-month rally in U.S. and
Japanese government bonds.
Japan's Nikkei stock index led declines in the region,
tumbling 3.6 percent, as investors grew more concerned that
officials were not going to halt the relentless rise in the
yen, which has gained 11 percent since May.
Leading European stocks <> fell 1.2 percent in early
trade, while S&P 500 futures <.SPX> were down 1.5 percent,
pointing to a weaker opening on Wall Street as investors braced
for what is expected to be more gloomy economic U.S. data.
With governments, especially in fiscally weak advanced
economies, wary of new stimulus spending to support their
recoveries, safety has been the name of the game for investors
in August.
Gold prices have risen around 5 percent this month, on
track for the largest monthly gain since April, while the
benchmark yield on the 10-year U.S. Treasury note dropped 39
basis points in August, its biggest drop since December 2008.
Investors ignored slightly stronger-than-expected U.S.
consumption data overnight and focused on the August U.S.
payrolls report due on Friday to see if private sector hiring
held up despite expected layoffs in the public sector.
A disappointing payrolls figure for a third consecutive
month along with poor readings of housing and manufacturing
data will probably depress bond yields further and put upward
pressure on the yen, which is near a 15-year high against the
dollar.
"Though the U.S. spending data yesterday wasn't bad, it's
the indicators out later this week that are the really
important ones, and predictions for these are really raising
fears about the economic recovery," said Takashi Ushio, head of
the investment strategy division at Marusan Securities in
Tokyo.
U.S. housing, consumer and regional business data are all
expected later in the day. []
In Japan, the Nikkei share average <> suffered its
worst single-day decline since June 7, led by a mix of
technology and retailing stocks.
The Nikkei has tumbled more than 7 percent in August, set
for the largest monthly decline since May, on worries that the
global recovery may be stalling and as the surging yen
threatened to curb exports, which have been driving Japan's
fragile recovery.
The MSCI index of Asia Pacific stocks outside Japan fell
1.6 percent <.MIAPJ0000PUS>, with commodity-related shares the
biggest drag on fears of weaker demand for raw materials.
The region has fared better than others, however, thanks to
its relatively strong growth prospects. The Asia Pacific
ex-Japan index is down 4 percent so far this year, compared
with a 7 percent decline on the MSCI world equities index
<.MIWD00000PUS>.
INDOMITABLE YEN
The yen's four-month rise against the dollar is its longest
string of gains since 2008. On Tuesday, the dollar was down 0.6
percent at 84.15 yen <JPY=>, near a 15-year low of 83.58 yen
touched last week.
The Bank of Japan boosted a cheap loan scheme on Monday
after an emergency meeting, but investors saw the move as a
minimal, symbolic gesture that will do little to halt the yen's
climb. []
Market players may now test the government's resolve to
back its words with yen-selling intervention, analysts said,
though few expect it to move any time soon unless the
currency's gains accelerate.
Much of the currency's rise has been attributable to
factors outside of Tokyo's control: prolonged U.S. dollar
weakness on fears it may be sliding back into recession, and a
flight to so-called safe havens like the yen as investors shun
riskier global assets.
Nevertheless, "if U.S. economic data due this week pushes the
yen higher, Japan may indeed intervene," said Etsuko Yamashita,
chief economist at Sumitomo Mitsui Banking Corp.
The New Zealand dollar dropped 1.3 percent against the yen
to 58.86 yen <NZDJPY=R> after a major finance company in New
Zealand failed. []
Government bonds rose as equity markets sagged.
The 10-year U.S. Treasury yield slipped to 2.53 percent
from 2.55 percent <US10YT=RR> late on Friday in New York.
Investors have been buying longer-dated paper for the extra bit
of yield, causing the yield advantage of 10-year notes over
2-year notes to shrink by 33 basis points in August.
After a sharp drop on Monday, Japanese government bond
futures rose 0.28 point to 142.73 <2JGBv1>.
However, supply concerns could haunt long-maturity paper
after Japan's Prime Minister Naoto Kan said the government
could compile an extra budget if necessary, after the cabinet
decided on Monday to compile economic steps using reserves from
this fiscal year's budget.
(Additional reporting by Elaine Lies and Hideyuki Sano in
TOKYO)
(Editing by Kim Coghill)
