GLOBAL MARKETS-Stocks sag, haunted by economy worries; bonds up

                                
  (Recasts, adds markets, quotes)
                                
 By Louise Heavens
                                
 SINGAPORE, Jan 28 (Reuters) - Shares in Asia fell on
Monday, with Japan down around 2.5 percent and Hong Kong down
more than 3 percent, as concerns over the health of the U.S.
economy returned to haunt stock markets, sending investors to
seek safe haven government bonds.
                                
 The dollar dipped slightly against the euro as investors
nervously jockeyed into position ahead of this week's Federal
Reserve meeting, at which the bank is set to cut interest rates
again, having slashed them in an emergency move last week.
                                
 Oil drifted back down to $90 a barrel with traders saying
Friday's $1.30 surge might have been overdone after Wall Street
ended the week on a down note following two days of sharp
gains. [.N]
                                
 The market mood was calmer after last week's nerve-wracking
rollercoaster, which saw global equity markets toppled by
growing despair over the U.S. economy earlier in the week and
then lifted by a $150 billion stimulus plan agreed by U.S.
legislators and the White House. [ID:nN24261782]
                                
 "The market appears to have hit bottom last week but it's
still not in a position to keep rising, considering various
events pending such as the Fed rate decision," said Koichi
Ogawa, chief portfolio manager at Daiwa SB Investments in
Tokyo.
                                
 The benchmark Nikkei average <.N225> was down 2.6 percent
by the midession, after finishing Friday up 4.1 percent to mark
its biggest one-day gain in nearly six years. Shares in
exporters such as Sony Corp <6758.T> and Canon Inc <7751.T>
fell more than 3 percent.
                                
 Seoul's KOSPI index <.KS11> shed 2 percent by 0211 GMT.
                                
 "Although aggressive U.S. stimulus measures are likely to
stablise global financial markets, South Korea and its
companies are still vulnerable to economic risks," said Lee
Young-won, a strategist at Prudential Investment & Securities.
                                
 Australia's market <.AXJO> was shut for a public holiday.
Hong Kong's Hang Seng <.HSI> slid 3 percent, while MSIC's index
of Asia-Pacific stocks excluding Japan <.MIAPJ0000PUS> fell 1.6
percent by 0228 GMT, taking year to date losses back above 10
percent.
                                
 DAVOS DOWNER
                                
 World business leaders gathered in Davos for last week's
meeting said on Saturday the worst might yet be to come in a
financial crisis driven by continuing fears of bank losses and
uncertainty over U.S. emergency stimulus measures.
                                
 Banks said there were few cures for a financial system
faced with hundreds of billions of dollars in investments which
have turned bad.
                                
 "It will be a while before you see a return of normalcy in
banking and markets," Merrill Lynch <MER.N> CEO John Thain
said. [ID:nL26541130]
                                
 French bank Societe Generale's <SOGN.VX> trading scandal
remained in focus.
                                
 On Sunday, the bank defended its handling of the world's
biggest trading scandal, but admitted its risk systems had
failed to detect a 50-billion-euro market bet by a lone trader.
For a list of stories, click on [ID:nL24876433]
                                
 For now, some investors sought safety in Japanese
government bonds.
                                
 March 10-year futures <2JGBv1> rose 0.56 of a point to
137.92, while the benchmark 10-year bond yield <JP10YTN=JBTC>
fell to 1.420 percent.
                                
 The dollar traded at 106.67 yen <JPY=>, holding above the
trough of 104.95 yen struck last week as global equities
tumbled, its lowest since May 2005.
                                
 The euro edged up from late U.S. trade on Friday to $1.4674
<EUR=>.
                                
 U.S. crude <CLc1> fell 77 cents to $89.94 a barrel.
                                
 Gold and platinum traded near record highs supply fears
lingered after South Africa's mines halted production due to a
power crisis.
                                
 Spot gold <XAU=> rose to $917 an ounce from $913.00/914.00
an ounce late in New York on Friday, when the metal rallied to
record high of $923.40 an ounce.
                                
 Platinum <XPT=> changed hands at around $1,685.
 (Editing by Lincoln Feast)