TREASURIES-Futures hit 4-year high in Asia

TOKYO Jan 16 (Reuters) - U.S. Treasuries climbed on Wednesday in Asia, driving futures to a four-year high as Asian stock markets tumbled, prompting investors to move more funds into the safety of government bonds.

Treasuries initially jumped on market talk that the Federal Reserve was holding an emergency meeting to cut interest rates immediately.

A Fed spokesman declined to comment.

The rumours surfaced as speculation mounted that signs of U.S. economic problems and slumping equity markets could prompt the Fed to cut rates before its next scheduled policy meeting on Jan. 29-30.

Futures contracts reflect a 50-50 chance of the Fed slashing interest rates by as much as three-quarters of a percentage point by the end of the month FEDWATCH.

The benchmark 10-year yield fell further to the lowest since mid-2003 as U.S. stock index futures SPc1 fell 0.7 percent and pointed to a weak start later in the day, suggesting the bond market could gain new momentum ahead of more bank earnings including those of JPMorgan Chase (JPM.N) on Wednesday.

"Given more and more weak economic data and bad news about bank earnings, the market looks set for a further rally even though it's already in an overshoot area," said Yoshio Takahashi, a bond strategist for Barclays Capital Japan.

March 10-year futures TYv1 climbed 12/32 to 116-15/32.

It jumped as high as 116-17/32 earlier in the Asian session, the highest since March 2004, according to Reuters data.

The benchmark 10-year note US10YT=RR rose 6/32 in price to yield 3.656 percent, down 2.5 basis points from late New York trading on Tuesday. The 10-year yield fell as low as 3.650 percent at one point, the lowest since July 2003.

The two-year note US2YT=RR gained 1.6/32 in price to yield 2.467 percent, down 3 basis points and touching lows not seen since 2004.

Treasuries rallied on Tuesday after a dismal reading of December retail sales and Citigroup Inc's (C.N) first ever quarterly loss fuelled fears of a U.S. recession, which in turn further stoked expectations that the Fed will cut interest rates aggressively.

Asian equity markets slumped with the Nikkei share average .N225 falling 1.8 percent and hitting a 26-month low and Hong Kong's stock index .HSI tumbling nearly 4 percent.

Some market players were wary of chasing Treasuries' gains before monthly consumer inflation data due later in the session. A higher-than-expected reading of the inflation index could pare back bond market bets and hurt long maturities' prices.

The median forecast among economists is for a rise of 2.0 percent in the headline December U.S. consumer price index, or a year-on-year gain of 4.1 percent.

Following the 0.1 percent slip in the overall U.S. December producer price index reported on Tuesday, a muted CPI reading could help Treasuries rally more, especially if combined with other signs that the economy could fall into recession. (Editing by Michael Watson)