Global shares slip again but yen surge pauses

U.S. Treasuries were steady after gains made on Thursday as a wave of risk aversion continued to break over world markets.

But gold, usually a prime safe haven, caught the jitters and fell to its lowest in more than a week. Copper also slipped.

"We're still riding the storm out but we still don't think this is the start of a major financial crisis," said one European government bond trader.

"It's basically a leveraged story and stocks and dollar/yen is really all you need to be looking at the moment in a very simplistic way because they're driving everything."

The mood across markets remained edgy after gyrations this week triggered by a range of factors, from a steep drop in Chinese shares to worries about the U.S. subprime mortgage sector, possible recession and Iran's nuclear program.

The International Monetary Fund weighed in on Thursday to calm edgy investors, describing this week's declines as a correction and not a prolonged shift in markets, although it warned them to remain on guard.

Analysts said the sudden unwinding of so-called carry trades, in which investors borrow in a low-yielding currency -- notably the yen -- to buy higher-yielding assets, seemed to have slowed but probably had further to run.

European stocks seemed to break their three-day losing streak by opening higher, but quickly turned negative led by mining firms like BHP Billiton and Rio Tinto.

By 1015 GMT the pan-European FTSEurofirst 300 index was down 0.1 percent at 1,467.3 after sinking as far as 1,460.1. The index has fallen 5 percent over the past three sessions and is now down 1.1 percent so far this year.

Asian stock markets ended mixed but mainly lower, with Tokyo's Nikkei average erasing its gains for the year to close down 1.35 percent at 17,217.9. MSCI's index of Asian stocks outside Japan was down 0.5 percent.

But China's composite share index, which helped spark the rout on Tuesday with a near-9 percent dive, moved up 1.2 percent and Hong Kong's Hang Seng rose 0.3 percent.

U.S. stock index futures trimmed gains, with Nasdaq futures down 0.2 percent. U.S. stocks closed lower on Thursday, continuing the global slide, although a better-than-expected U.S. manufacturing survey helped curb losses.

YEN STEADIES, STILL STRONG

The yen steadied off Thursday's 2007 high against the dollar but was still on track for its biggest weekly gain since late 2005 as nervous investors bought back the Japanese currency.

The dollar took heart from Thursday's data from the Institute for Supply Management showing a broad recovery in U.S. factory activity last month, suggesting the world's biggest economy is not in as bad shape as many had thought.

Some analysts said investors' risk aversion had risen so much that the dollar was even enjoying some safe-haven flows.

"The dollar is holding up still very well thanks to dollar-positive risk aversion," said Adam Myers, currency strategist at UBS. "(But) we should see the yen will continue to strengthen into next week because we have got so many people who are short yen."

The dollar was steady at 117.52 after falling to an 11-week low of 116.94 on Thursday.

The euro lost ground against the Japanese currency to 154.65 yen, moving further away from its record high of 159.63 set last week, and was also more than 0.2 percent down against the dollar at $1.3154.

Bond markets continued to be driven by equities. U.S. Treasuries were flat, paring early losses as European shares fell. The March T-Note future rose 1/32 to 108-39/64.

European government bonds also opened weaker but turned positive as stocks faltered. The March Bund future was 6 ticks higher on the day at 116.40 while 10-year cash yields were down 1.3 basis points at 3.94 percent.

Oil prices held near $62 a barrel as refinery glitches and lower U.S. gasoline stocks prompted worries over summer fuel supplies. U.S. crude oil was up 26 cents a barrel at $62.26.