* European, U.S. shares fall, Japan stocks bounce back
* Yen hits 16-year high against dollar
* Bahrain, Libya concern boosts oil price
* U.S. Treasuries rally as investors flee risky assets
(Updates U.S. prices)
By Al Yoon
NEW YORK, March 16 (Reuters) - European and U.S. shares
slid for a third day on Wednesday and Treasury debt prices
jumped as the nuclear crisis in Japan raised concerns about
slower worldwide growth.
Investors also kept an eye on tensions in Bahrain, as well
as on euro-zone borrowing costs, especially in Portugal.
On Wall Street, major U.S. stock indexes slumped more than
1 percent and volatility spiked higher after European Union
Energy Commissioner Guenther Oettinger told the European
Parliament: "In the coming hours, there could be further
catastrophic events, which could pose a threat to the lives of
people on the island."
The EU energy chief's spokeswoman later said he had no
privileged information on Japan's nuclear reactor situation and
that his comments were based on media reports. But reaction to
his comments, including the yen's surge to a 16-year high,
underscored the fragile state of equity markets.
"We are so fixated here on Japan, and this intraday
volatility is without question here to stay as we are all
quickly learning what nuclear power is. You can throw
everything else out the window," said Ryan Detrick, senior
technical strategist at Schaeffer's Investment Research in
Cincinnati, Ohio.
U.S. stocks opened lower as the price of Brent crude oil
<LCOc1> rose to an intraday high above $111 a barrel after
Bahraini security forces cracked down on protesters, with
fighting in Libya simmering in the background.
Euro-zone debt worries also pressured the euro. Portugal's
12-month borrowing costs rose at a bill auction after a
two-notch rating downgrade by Moody's, showing the debt-laden
country remains under pressure despite a euro-zone deal to
tackle the debt crisis.
"There is a perfect storm of uncertainty right now in terms
of global growth, and markets are taking that into account,"
said Oliver Pursche, president of Gary Goldberg Financial
Services in Suffern, New York.
Some sectors of financial markets began to readjust after a
worldwide battering of riskier assets following the earthquake,
tsunami and nuclear disasters that have hit Japan, the world's
third-largest economy. But the reports of ongoing troubles at a
Japanese nuclear plant deepened investor fears.
MSCI's all-country world stock index <.MIWD00000PUS> was
down 0.37 percent. Over the past three sessions, the index fell
as much as 4.5 percent, following a near 20 percent,
two-session dive in Japan's Nikkei average <>.
A 5.7 percent rise in the Nikkei drove the recovery in
Asia, though it remained down more than 11 percent for the
year.
There was widespread belief that the post-earthquake
sell-off had gone too far, too quickly, but there was still
concern that the nuclear reactor crisis was unresolved. The
main index of volatility <.VIX> rose 15 percent to its highest
level since August.
The Dow Jones industrial average <> dropped 149.44
points, or 1.26 percent, to 11,705.98. The Standard & Poor's
500 Index <.SPX> lost 14.72 points, or 1.15 percent, to
1,267.15 and the Nasdaq Composite Index <> fell 27.17
points, or 1.02 percent, to 2,640.16.
Europe's Eurofirst 300 <> dropped 1.4 percent. Banks
led decliners after the Moody's downgrade of Portuguese debt.
U.S. and European markets also weakened after the U.S.
government said its producer price index surged at its fastest
pace in more than 1-1/2 years in February.
Benchmark U.S. 10-year Treasury yields declined 0.07
percentage point to 3.22 percent. The yield earlier hit a more
than three-month low of 3.14 percent.
The 10-year U.S. Treasury note's price shot up 23/32.
YEN EXTENDS GAIN
The yen pushed to a 16-year high versus the dollar as
investors speculated Japan insurers would repatriate the
currency to pay for claims. The dollar-yen rate <JPY=> was last
down 0.8 percent at 80.10 after busting through the November
low to 79.972 yen, according to trading platform EBS.
Japan's nuclear crisis was also seen as triggering more
safe-haven yen demand, raising the prospect of intervention to
stem big gains.
"We wouldn't talk about a recovery in dollar/yen yet," said
Lutz Karpowitz, FX strategist at Commerzbank in Frankfurt. A
drop under 80 yen is not expected, however, as authorities are
likely to take steps to prevent a steeper yen rise before the
level was broken, he said.
The dollar index <.DXY> against major currencies rose 0.4
percent, while the euro <EUR=> slipped 0.48 percent to $1.3929,
having failed to break above a four-month high of $1.4036 hit
earlier this month.
Spot gold prices <XAU=> rose $5.20, or 0.37 percent, to
$1399.10.
(Additional reporting by Akiko Takeda, Antoni Slodkowski,
Naomi Tajitsu, Kirsten Donovan, Atul Prakash, Harro ten Wolde
and Caroline Valetkevitch; Editing by Jan Paschal and Dan
Grebler)
