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Gold tumbles again after sharpest fall in over 5 years

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Benchmark US Treasury yields at 1-year closing low

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Planned Trump-Putin summit on hold; Trump-Xi meeting

uncertain

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Nikkei and yen react to new PM's stimulus drive

(Updates head of US open)

By Marc Jones and Rae Wee

LONDON/SINGAPORE, Oct 22 (Reuters) - The shine was

threatening to come off one of the year's best-performing trades

on Wednesday as gold extended its sharpest drop in over five

years, although equity bulls remained unfazed as bond markets

took the strain.

Gold remains firmly on course for its strongest year

since the 1979 oil crisis thanks to a 50% leap in price, but

another 2.5% drop during London trading - after Tuesday's 5%

dive - pushed it back towards $4,000 an ounce.

There has been no obvious catalyst for the plunge other than

general altitude sickness after a blockbuster run amid

uncertainty about a reshaping of the world order.

EUROPEAN STOCKS EDGE UP, BOND YIELDS NUDGE LOWER

"Gold was massively stretched, massively overbought. There's

been a lot of FOMO (fear of missing out) going into that

market," said Tony Sycamore, a market analyst at IG, adding that

tech stocks and some other markets were in a similar position.

"For some of these other frothy markets, we're seeing little

flash crashes now ... We're just seeing little tremors in

markets, and potentially there's something more significant to

come."

Equity markets, which have also roared higher this year,

ignored gold's stumbles, gearing up instead for Tesla results

later, which will kick off earnings season for the super-sized

'Magnificent Seven' group of Wall Street stocks.

Europe's STOXX 600 index was inching higher, after

getting close to a new record high on Tuesday, although most

large Asian bourses ended lower overnight.

Geopolitics remained front and centre with a planned summit

between U.S. President Donald Trump and Russian President

Vladimir Putin now in doubt and ambiguity too over a potential

meeting between Trump and China's President Xi Jinping.

The selloff in gold injected some volatility into the

broader markets overnight, but it did little to knock other

safe-haven assets like bonds.

European government debt yields nudged lower, while 10-year

U.S. Treasury yields - often the biggest driver of global

borrowing costs - consolidated the 1-year closing low of 3.945%

they had recorded on Tuesday.

Investors scooped up UK 'gilts' too - but also sold the

pound - after data showed Britain's consumer price inflation and

a key underlying measure of price growth unexpectedly held

steady in September.

That pushed interest rate futures to price a roughly 75%

chance the Bank of England will now cut UK rates to 3.75% from

4% at its December meeting, up from about 46% before the data.

"We see clear and pronounced risks of a December cut versus

our base case of a February move," Morgan Stanley analyst Bruna

Skarica said, referring to the inflation numbers, adding a cut

could even happen in November.

JAPAN STIMULUS

Oil prices pushed higher for a second day, rising by about

2%, buoyed by hopes of progress for U.S. trade deals with China

and India.

Asia's other focus had been that new Japanese Prime Minister

Sanae Takaichi is preparing an economic stimulus package likely

to exceed last year's 13.9 trillion yen ($92.19 billion).

The Nikkei saw a late rally but MSCI's index of Asia-Pacific

shares outside Japan ended down 0.4%, while

Nasdaq and S&P 500 futures were flat after a mixed

session on Tuesday.

Shares of Netflix ( NFLX ) sank nearly 6% after the bell as

the streaming giant missed Wall Street's third-quarter earnings

targets, whereas General Motors' ( GM ) stock surged 15% after

raising its profit outlook.

In currencies, the dollar was heading for a

fourth day of modest gains while the yen ticked up to

151.64 per dollar after the stimulus report.

The package marks Takaichi's first major economic initiative

since the advocate of big fiscal spending took office on

Tuesday, reflecting her commitment to what she calls

"responsible proactive fiscal policy."

The Bank of Japan also meets next week, where expectations

are for the central bank - like the ECB in Europe - to stand pat

on rates.

WAITING ON CENTRAL BANK CUES

The U.S. Federal Reserve also meets next week, and investors

have almost fully priced in a 25-basis-point rate cut.

The dearth of U.S. economic data due to the ongoing

government shutdown means that policymakers could be left flying

blind at the meeting, a less-than-ideal situation as they remain

divided over which risks deserve the most attention.

Trump on Tuesday rebuffed a request by top Democratic

lawmakers to meet until the three-week-old U.S. government

shutdown ends.

The shutdown has in turn left currencies largely rangebound

over the past few sessions due to the lack of fresh catalysts

from data releases, although inflation data will be published on

Friday.