(Updates prices)

By Tom Westbrook

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 160.4 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 0.4%.

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%.

FTSE futures and European futures were last

down 0.2%.

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

fell 0.7% 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 7 bps on Thursday

to 4.18%, 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.

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 final 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.

DOLLAR LOOMS OVER ASIA

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

dollar, especially against the yen and yuan where the gap to

domestic yields are the largest.

China's yuan slid to a seven-month low of 7.689

per dollar, with the central bank weakening the currency's

trading band and data showing a sharp slowdown in industrial

profit growth.

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

on Wednesday was fragile at 171.57 in Asia and at

160.4 per dollar was weaker than levels which prompted Japanese

intervention in April and May.

In real terms it is its weakest in more than five decades,

said Capital Economics' Thomas Matthews and its slide is driving

up bets of a policy response from the Bank of Japan, sending

Japanese 10-year yields up 5.5 bps to 1.075% on Thursday.

Japanese finance minister Shunichi Suzuki reiterated that

the government is concerned about the impact of the sliding yen

on the economy and watching the currency market closely.

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 dollar index made a two-month high of 106.13 on

Wednesday and 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 1.5

bps in Tokyo to 4.33% for a rise of 14 bps for the quarter so

far.

In commodity markets Brent crude futures fell 0.2%

to $85.07 a barrel, a 2.8% drop for the quarter so far. Gold

slipped as yields rose and traded at $2,299 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)