* European shares drop 1 pct, Wall Street seen lower
* Yen steadies after 6-month low vs dollar on BOJ talk
* Nikkei hits highest close in 6 years
* Aussie dollar edges to near 3-month low after RBA comments
* Gold stabilises after 2.6 pct slide overnight
By Marc Jones
LONDON, Dec 3 World stocks tumbled for a second
day on Tuesday with European markets taking their biggest fall
since August, spooked by concerns that the United States may
soon start cutting back its economic stimulus.
Upbeat U.S. economic data on Monday had bolstered the
still-minority view that the Federal Reserve may start the
process of turning off the taps on its huge bond-buying
programme this month.
The uncertainty about the timing offset signs from Japan
that it is ready to ramp up its stimulus efforts
again. Political upheaval in Ukraine fed into
U.S. stock index futures pointed to a third straight day of
falls for the S&P 500.
Many see March as most the likely time for the Fed to begin
to trim the stimulus. But "the data shows the U.S. shutdown
government has had little impact so the old story that the Fed
might taper in December has gained traction again," said Philip
Marey a U.S.-focused economist at Rabobank.
Turbulence rattled European shares for the second day on the
trot with Paris's CAC 40 shedding 1.7 percent in its
weakest day since August as the pan-regional FTSEurofirst
sank 1 percent.
MSCI's world stock index, which tracks 45
countries, was down a more modest 0.25 percent, supported by
early gains in Asia as talk of additional BOJ aid lifted
Japanese stocks towards a six-year high.
But there was unease about Ukraine after protests against
President Viktor Yanukovich's decision to move away from Europe
Yanukovich left Ukraine for a state visit to China on
Tuesday as the cost of insuring Ukraine government debt against
default jumped anew to leave it a whisker away from 2009 peak
The European Central Bank and Bank of England both meet on
Thursday with the ECB in particular focus after last month's
surprise interest rate cut.
The euro had edged up to just over $1.3585 as U.S.
trading gathered pace and was at a 5-year high versus the yen
Euro zone debt also made ground as investors reacted well to
a debt swap by Portugal aimed at getting Lisbon in shape for a
possible return to borrowing markets next year. Portugal's bonds
and stocks outperformed.
"Portuguese bonds are actually posting a rally, reflecting
the fact that after this morning's exchange, next year's funding
is going to be less challenging," Luca Cazzulani, strategist at
Investors otherwise remained fixated on Fed, whose stimulus
programme has helped drive this year's global rally.
U.S. 10-year Treasury yields, the benchmark for
the world's borrowing costs, backed off from Monday's high of
2.8 percent to 2.77 percent.
Friday's nonfarm payrolls report will give the next cue for
guessing when the Fed will start reducing its monthly $85
billion bond purchases.
"A drop in the unemployment rate from 7.3 percent to 7.0
percent would fan tapering fears, preventing U.S. Treasuries
from reversing course even on a lacklustre 150,000 nonfarm
payrolls," Societe Generale said in a note.
AUSSIE DOLLAR DOWN
The appeal of the dollar moved down with U.S. Treasury
yields. It had earlier hit a six-month high of 103.38 yen
with the yen also weighed down by the speculation about the Bank
of Japan may expand.
According to officials briefed on the process, the bank is
looking to go beyond its $70 billion-a-month bond-buying
programme. Options include major purchases of
stock-market-linked funds or other assets riskier than Japanese
government bonds, the insiders said.
Despite robust export numbers and strong retail data, the
Australian dollar dropped towards a three-month low
after the Reserve Bank of Australia left rates on hold and said
the currency was "still uncomfortably high."
Gold, meanwhile, traded near a five-month low amid the fears
of an early end to Fed stimulus. Spot gold made a small
rebound to $1,222 an ounce in early trading in London but
remained close to its lowest levels since early July.
U.S. crude prices were flat at around $94 a barrel,
after a 1.2 percent rise overnight. Brent was steady at