LONDON (Reuters) - World financial markets were unsettled again on Thursday as a week-long sell-off in benchmark government bonds, stocks and the dollar and a race up in oil prices showed little sign of relenting.
Nerves were still jangling in Europe and shares and bonds suffered another pounding on fears the recent surge in yields, the euro and energy costs could snuff out the only recently-formed hopes of a solid euro zone recovery.
The regional FTSEurofirst was led down for a third straight day by falls of as much as 1.2 and 1.8 percent for Germany's Dax and France's CAC 40 as the euro hit its highest level since February.
Bond markets were at the centre of the rout as more heavy blows for Germany's normally rock-solid Bunds put them on course for their biggest weekly spike in yields in over a decade.
Italian and Spanish yields hit 2 percent for the first time this year, French ones topped 1 percent and U.S. Treasuries, the benchmark for borrowing costs globally, briefly broke 2.3 percent. [EUR/GVD]
"There has been a massive repositioning over the last 10 days and it is still ongoing," said Philippe Gudin de Vallerin, head of euro research at Barclays in Paris.
"Some sales people say there has been major selling from Asia, but from a fundamental point of view the move has certainly been excessive. It is difficult to understand."
Wall Street was expected to start around 0.5 percent lower. London's FTSE, Europe's biggest share market, meanwhile, was down 1.3 percent, with attention also on the day's national election that remained too close to call.
Sterling was a shade lower against the dollar and markets barely budged during the election campaigning, but the outcome will be anything but dull.
Britain’s ability to hold on to Scotland and its place in the European Union are both potentially up for grabs depending on which party, or more likely parties, prevail.
"In many ways the process doesn’t really start until we know the result and whether we have a ‘working’ government," said Nick Lawson, a managing director at Deutsche Bank in London.
UK gilt yields nudged higher like most global bonds, but focus was heavily on the euro zone as worries about Greece's future in the bloc also lurked.
German 10-year bond yields jumped as far as 0.770 percent before finding some support. Just a month ago they were at a record low of 0.05 percent and many were betting the European Central Bank's trillion-euro bond-buying plan would turn them negative.
The reason for the turnaround in sentiment hasn't yet been pinpointed although with oil back near $70 a barrel fuelling talk of a rebound in inflation - Brent was at $68.25 at 1200 GMT - some analysts argue the ECB is now more likely to end its QE early, rather than extend it as previously suspected.
Data from France and Germany released as markets opened added to the economic uncertainty. German industrial orders figures rose less than expected, with the country's economy ministry pointing to weak foreign demand.
The extent of the bond market woes was underscored meanwhile as eastern Europe's biggest economy, Poland, cancelled a debt auction and its deputy finance minister warned they may not be restarted for a few months.
The dollar has been one of the other startling movers in recent weeks. It was languishing near its lowest in over two months against a basket of major currencies having come under renewed pressure from disappointing data on Wednesday. [FRX/]
Friday sees the release of monthly U.S. jobs figures that are seen as the best gauge of the giant economy's health. It is also crucial for the Federal Reserve, and its chair, Janet Yellen, warned on Wednesday that markets may not react well when U.S. interest rates finally go up.
"We’re trying to ... communicate as clearly (as possible) about our monetary policy so we don’t take markets by surprise," she said.
Asia saw fresh selling overnight too. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent as shares retreated in China, Hong Kong, Australia, South Korean and Malaysia.
The Shanghai Composite Index ended down 1.4 percent as fears of fresh moves by regulators to reduce leverage in stock trading extended its losses so far this week to 6 percent. Tokyo's Nikkei lost 1.1 percent too.
Among commodities, short-lived profit taking saw oil drift off its 2015 high [O/R], and copper and most other industrial metals also retreated from recent peaks as traders locked in some gains. [MET/L]
"Certainly this decline in the dollar index from the recent highs is shaping a lot of price activity across the commodity complex," said analyst Mark Keenan of Societe Generale.
Reporting by Marc Jones; Editing by Mark Heinrich