GLOBAL MARKETS-Stocks, dollar wince as Bernanke predicts pain

                                
 By Tom Miles
                                
 HONG KONG, Feb 29 (Reuters) - The dollar dropped to a
3-year low against the yen on Friday amid renewed worries about
the U.S. economy, rattling stock markets, bolstering bonds and
helping drive up prices of safe-haven gold and oil to all-time
highs.
                                
 Weak U.S. economic data and a warning from Federal Reserve
Chairman Ben Bernanke that some small U.S. banks could fail
raised expectations for more interest rate cuts in the world's
leading economy.
                                
 The dollar <JPY=> tumbled to 104.65 yen, its lowest since
May 2005, after a slide in the U.S. currency towards the key
105 yen level triggered a wave of stop-loss orders.
                                
 Gold <XAU=> surged to a new high of $973.10 an ounce, up
more than 16 percent this year, and crude oil <CLc1> hit $103 a
barrel for the first time in history, fuelled by the weak
dollar and a fire at a big European gas terminal.
[ID:nL2870117]
                                
 By 0230 GMT, spot gold stood at $969.40 an ounce and oil
was quoted at $102.60 a barrel.
                                
 MSCI's index of Asian stocks outside Japan <.MIAPJ0000PUS>
was down 1.5 percent by 0220 GMT, while Japan's benchmark
Nikkei average <.N225> and the broader TOPIX <.TOPX> were off
2.5 percent as investors digested Bernanke's ugly prognosis.
                                
 "This will have an impact in terms of credit worries but,
even more, it reflects growing concern about the worsening U.S.
economy," said Yutaka Miura, senior technical analyst at Shinko
Securities. "But for Tokyo, the real worry is the yen's rise
against the dollar, which is going to make things really
tough."
                                
 The sour mood in the stock market was a sweetener for
Japanese government debt as investors sought shelter from the
U.S. storm.
                                
 "Bernanke's remarks were something a central banker should
never say," said a bond strategist at a U.S. brokerage. "It
shocked us and certainly worsened credit jitters in the
market."
                                
 March 10-year Japanese government bond futures <2JGBv1>
rose as high as 138.42, their highest since Jan. 24, while the
benchmark 10-year yield <JP10YTN=JBTC>, which touched a 2-month
peak of 1.500 percent earlier this week, tumbled to a 5-week
low of 1.365 percent.
                                
 STOCKS SHOCKED
                                
 Among the hardest-hit stocks were tech firms and insurers,
troubled by a lower-than-expected profit at computer maker Dell
Inc <DELL.O> [ID:nN28619588] and a large quarterly loss at
American International Group Inc <AIG.N>, the world's largest
insurer, on write-downs of derivatives related to bad mortgage
investments. [ID:nN28627147]
                                
 The continuing commodities rally cheered some firms in the
sector, such as Korea Zinc <010130.KS>, which was one of the
top gainers in Seoul <.PG.KS>, rising 7.7 percent after London
zinc futures <MZN3> jumped 5 percent on Thursday.
                                
 Overall, the main South Korean index <.KS11> was down 1.4
percent. Hong Kong's Hang Seng index <.HSI> fell 1.8 percent,
with global lender HSBC Holdings <0005.HK> leading the blue
chips lower with a 2 percent slide.
                                
 The commodities boom was not enough to stop the
mining-heavy Australian index <.AXJO> losing 2.3 percent as
fear of higher interest rates to tame inflation continued to
trouble banks.
                                
 And although it reported a 58 percent jump in profits, Air
New Zealand Ltd <AIR.NZ> fell 6.8 percent as rising fuel prices
and currency difficulties pummelled airline shares.
 (Additional reporting by Elaine Lies and Rika Otsuka in TOKYO;
in SEOUL; in SYDNEY; in SINGAPORE; Editing by Ian Geoghegan)