SINGAPORE, June 27 (Reuters) - Asian shares fell and

bond yields spiked on nervousness about inflation on Thursday,

while the yen's slide past 160-per-dollar had currency traders

bracing for Japan to step in and steady it.

The dollar made six-week highs on sterling and the kiwi and

at 160.7 yen traded just shy of Thursday's 38-year

peak. The jittery mood had frothy sectors of financial markets

especially vulnerable and Nasdaq futures dropped 0.5%.

Shares in bellwether chipmaker Micron Technology ( MU ) slid

8% in U.S. after-hours trade as it met rather than topped lofty

revenue expectations. Japan's Nikkei fell 1%.

MSCI's broadest index of Asia-Pacific shares outside Japan

was down 0.5%, with some of the largest losses

in Australia where rate sensitive stocks sank following

Wednesday's data showing a surprise jump in inflation.

"Australia's inflation is broadly at the highest levels in

the developed world now," said CommSec senior economist Ryan

Felsman, with the market re-pricing risks of further hikes.

Australian three-year government bond yields had

leapt 18 basis points on Wednesday, after inflation accelerated

to a six-month high in May, and rose another 10 bps on Thursday

to 4.21%, tracking an overnight sell-off in U.S. Treasuries.

Swaps markets price about a 40% chance Australia's central

bank hikes rates by 25 bps in August, up from around 10% before

the inflation surprise.

Ten-year Australian government bond yields are above U.S.

10-year yields for the first time since February

and the Australian dollar has been steady in the face

of broad U.S. dollar gains elsewhere.

Australia's inflation surprise also follows a similarly

unexpected jump in Canadian inflation and infused some extra

nerves into markets awaiting the next reading of the Federal

Reserve's preferred measure of U.S. inflation on Friday.

Later on Thursday U.S. GDP, European confidence figures, a

speech from Australia's deputy central bank governor, and a

rates decision in Sweden will be in focus ahead of the first

U.S. Presidential debate.

YEN WATCH

In foreign exchange markets U.S. yields have supported the

dollar, which touched a two-month high of 106.13 against a

basket of currencies on Wednesday.

The dollar index is up 1.3% for the month and almost 1.5%

for the quarter as expectations for rate cuts in the U.S. have

been pushed back by stubborn inflation and strong economic data.

Benchmark 10-year U.S. Treasury yields rose 8

bps overnight and another 3 bps in Tokyo to 4.343% for a rise of

15 bps for the quarter so far.

After falling overnight the New Zealand dollar

dipped a further 0.1% to a six-week low of $0.6069 on Thursday

and sterling nudged to a six-week trough of $1.2613.

The yen, which slumped to a lifetime low 171.79 per euro

on Wednesday was fragile at 171.57 in Asia and at

160.7 per dollar was weaker than levels which prompted Japanese

intervention in April and May.

Japanese finance minister Shunichi Suzuki said he would not

comment on levels on Thursday but reiterated that the government

is concerned about the impact of the sliding yen on the economy

and watching the currency market closely.

The yen is the worst performing G10 currency this year, down

12% against the dollar. The slide adds pressure on the Bank of

Japan to raise interest rates from near zero and loosen its grip

on the bond market with speculation of a move lifting 10-year

Japanese yields by 4 bps to 1.06%.

In commodity markets Brent crude futures fell 0.4%

to $84.92 a barrel, a 3% drop for the quarter so far. Gold

slipped as yields rose and traded at $2,297 an ounce.

Wheat futures hovered near two-month lows on signs of

a good U.S. harvest and improving weather in Russia.

(Editing by Shri Navaratnam)