* World stocks fall 0.7 pct after Nikkei sinks 3.6 pct
* Yen rises towards 15-year peak versus dollar
* Bund yields hit record low, US bond yields near 18-mth low
* Swiss franc soars against euro, dollar
By Dominic Lau
LONDON, Aug 31 (Reuters) - World stocks fell on Tuesday in
markets dominated by concerns the U.S. economy is sliding back
into recession, prompting further flows into safe-haven assets.
The yen - favoured for carry trades at times of economic
stress - hovered back near 15-year high against the dollar after
investors brushed off Japan's attempt to weaken the currency,
the Swiss franc soared against the euro and dollar, and yields
on benchmark German government bonds hit record lows.
Mounting U.S. economic concerns are likely to draw investors
away from riskier assets and push up the yen, keeping pressure
on Japan to intervene directly in currency markets for the first
time in more than six years.
Crude prices, seen as a proxy for world economic growth,
also came under pressure, extending losses so far in August to
6.5 percent and staying on track for their biggest monthly
decline since May.
World stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> lost 0.7 percent. The index is down 4.1 percent
in August and was headed towards its worst monthly performance
in three months.
Tokyo's Nikkei average <> shed 3.6 percent, its worst
daily drop in three months, after the Bank of Japan's move the
day before to boost cheap loans to commercial banks failed to
curb the yen's strength.
U.S. stock index futures <SPc1> <DJc1> <NDc1> eased 0.3 to
0.4 percent, indicating a weaker start for Wall Street ahead of
the minutes of the Federal Reserve's last meeting on Aug. 10. On
Monday, U.S. shares fell 1.4 to 1.6 percent.
In Europe, the FTSEurofirst 300 <> index dropped 1
percent and the Thomson Reuters Peripheral Eurozone Countries
Index <.TRXFLDPIPU> fell 0.7 percent.
"We've have had a string of weak numbers, and now even
second-tier economic data can have a big impact on the market,"
said Joost Van Leenders, investment specialist allocation and
strategy at BNP Paribas Investment Partners in Amsterdam.
"We're still 'underweight' equities because of the economic
outlook. We've been expecting a slowdown in the second half of
the year with the boom from inventories and stimulus spending
fading, and it has actually been a bit worse than we had
anticipated."
The VDAX-NEW volatility index <.V1XI>, Europe's main
barometer of investor anxiety, rose 2.7 percent. The higher the
volatility index, the lower investors' appetite for risk.
YEN NEAR 15-YR HIGH
The dollar was down 0.2 percent at 84.42 yen <JPY=>, not far
from its 15-year low of 83.58 hit last week. The U.S. currency
fell 2.4 percent against the Japanese currency this month after
sliding 2.2 percent in July.
"Japan's ministry of finance is sending signals that is
willing to intervene but clearly people remember its struggle
with intervention a few years ago," said Simon Derrick, head of
currency research at Bank of New York Mellon.
"If they don't intervene when the yen is at 84, when will
they do it? Once its goes to all time lows? I think their
resolve of staying away from intervention will be tested."
Japanese Finance Minister Yoshihiko Noda repeated on Tuesday
that the government would take decisive action on currencies --
usually seen as code for intervention -- when necessary, but
reaction in the market was limited. The yen has gained more than
9 percent versus the greenback so far this year.
The euro fell to an all-time low against the Swiss franc,
which also hovered close to a seven-month high against the
dollar.
Yields on benchmark 10-year German Bunds <DE10YT=TWEB> hit
record lows at 2.085 percent, while those on 10-year U.S.
Treasuries <US10YT=RR> slipped 2 basis points to 2.5108 percent,
hovering near 18-month low.
In the commodity market, oil <CLc1> lost 1.3 percent to
trade below $74 a barrel, while copper <MCU3> dropped 0.7
percent but was still up 1.5 percent this month.
(Additional reporting by Blaise Robinson in Paris, and Atul
Prakash, Anirban Nag and William James in London; Editing by
John Stonestreet)
