*

Manufacturing data subdued, US jobs report in focus

*

Global stock index falls, dollar hits two-week high

*

Yen gains as BOJ seen continuing rate hikes

(Updated prices after U.S. stock market close)

By Sinéad Carew and Yoruk Bahceli

Sept 3 (Reuters) - MSCI's gauge of global equities fell

sharply on Tuesday, with Wall Street stocks taking their biggest

hit since early August while U.S. Treasury yields fell after

manufacturing data spurred worries about the economy.

Investors were also waiting anxiously for the monthly U.S.

jobs report due later in the week, as it is expected to shed

more light on the health of the American economy and influence

how swiftly the Federal Reserve cuts rates.

Oil sold off sharply and prices settled at their lowest

level since Dec. 12 on expectations of an imminent deal to

resolve a dispute that has halted Libyan production and exports

following a U.N.-brokered meeting between rival factions.

Elsewhere in commodities, copper prices slumped to their

lowest in more than two weeks, on concerns that a weak Chinese

economy is curbing demand.

Wall Street indexes extended earlier losses after U.S.

manufacturing data pointed to subdued factory activity while it

edged up last month from an eight-month low in July with some

improvement in employment.

"Investors woke up this morning to see a mixed economic

report. They saw economically sensitive commodities like oil and

copper falling. Also, there's still a hangover from the tech

weakness last week," said Gene Goldman, chief investment officer

at Cetera Investment Management, El Segundo, California.

"Take all this together and it leads to an opportunity for

profit taking, especially with stocks near record highs," said

Goldman, also citing jitters that September is typically the

weakest month of the year with concerns exacerbated by the

looming U.S. presidential election in early November.

Investors are also waiting anxiously for Friday's August

U.S. jobs report, which is expected to help determine whether

the Fed cuts rates by 25 basis points or 50 on Sept. 18.

"Investors are wondering are we heading into a recession

quicker than was thought or does the Fed have this under control

with rate cuts going forward," said Robert Pavlik, senior

portfolio manager at Dakota Wealth in Fairfield, Connecticut,

adding that the manufacturing data "certainly didn't help."

Adding to volatility was the fact that many investors were

back from summer vacations and a long weekend as U.S. markets

were closed for the Labor Day holiday on Monday.

On Wall Street all three major indexes suffered their

biggest daily declines since Aug. 5.

The Dow Jones Industrial Average fell 626.15 points,

or 1.51%, to 40,936.93; the S&P 500 lost 119.47 points,

or 2.12%, to 5,528.93; and the Nasdaq Composite lost

577.33 points, or 3.26%, to 17,136.30.

MSCI's gauge of stocks across the globe fell

13.60 points, or 1.63%, to 819.44, also showing its biggest

one-day drop since Aug. 5.

Earlier Europe's STOXX 600 index had closed down

close to 1%.

In currencies, the dollar hovered near a two-week high

against the euro as traders braced for a data-heavy week,

including Friday's U.S. payrolls report.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

gained 0.13% to 101.79.

The euro was down 0.28% at $1.104.

Against the Japanese yen, the dollar weakened 0.82%

to 145.69 after media reports that cited the Bank of Japan

governor reiterating in a document submitted to a government

panel on Tuesday that the bank would keep raising interest rates

if the economy and inflation performed as currently expected.

U.S. Treasury yields were mostly lower, with the benchmark

10-year note on track to snap a five-session streak of gains,

after the soft manufacturing sector data.

The yield on benchmark U.S. 10-year notes fell

6.5 basis points to 3.846%, from 3.911% late on Friday while the

30-year bond yield fell 5.9 basis points to 4.1373%.

The 2-year note yield, which typically moves in

step with interest rate expectations, fell 4.7 basis points to

3.8796%, from 3.927% late on Friday.

In energy markets, U.S. crude settled down 4.4% at

$70.34 a barrel and Brent ended at $73.75 per barrel,

down 4.9% on the day.

Copper lost 2.12% to $8,988.00 a tonne. Three-month

aluminum on the London Metal Exchange fell 0.35% to

$2,415.50 a tonne.

Gold prices eased to their lowest in more than a week

pressured by a firm dollar, while investors awaited economic

data that could determine the size of U.S. rate cuts.

Spot gold lost 0.31% to $2,491.39 an ounce. U.S. gold

futures fell 0.27% to $2,487.10 an ounce.