Aug 5 (Reuters) - From massive U.S. tech stocks to

bitcoin, a spasm of economic worries is forcing an unwind of the

year's most popular trades, leaving investors to determine how

much more downside could lay ahead.

The rout has sparked some stunning market moves: the S&P 500

is down over 5% since last Wednesday, set for its biggest

three-day drop in more than two years. Japan's Nikkei

has tumbled nearly 20% while bitcoin has slid 15%.

Meanwhile, popular safe-haven assets such as U.S. government

bonds and the Swiss franc have surged.

Some market participants have pointed out that equity

weakness often provides a normal reset, especially for a market

that had charged ahead for months with little pause. Market

pullbacks of 5% or more in the S&P 500 have occurred an average

of three times a year since 1936, according to BofA Global

Research.

Others, however, believe there is more volatility to come,

and urge caution.

"Too much leverage in the global financial system, with

Japanese yen strength and overdone Treasury yield declines,

(are) a key to the unwind," Bill Gross, former head of bond

giant PIMCO and a closely followed market commentator, said in

an email to Reuters. "I'm not buying the small recovery from

morning bottoms. Not selling either. Markets (are) too

volatile."

Big tech stocks are one area that could be a source of

further selling. Even with recent losses, the tech-heavy Nasdaq

100 is up 7% this year. While that run has been fueled by

strong earnings earlier in the year and excitement over

artificial intelligence, it has also made many of the stocks

richly valued and drew comparisons to the dotcom bubble that

imploded more than two decades ago.

Valuations remain stretched, even after a recent drop: The

S&P 500 was trading at 20.5 times forward 12-month earnings

estimates last week, compared with its long-term average of

15.7, according to LSEG Datastream.

Importantly, the Magnificent Seven megacap stocks last month

accounted for one-third of the S&P 500, making their fate

closely tied to the trajectory of broader markets.

"We would argue that positioning has been a big driver of

recent market moves," said Mohit Kumar, chief economist for

Europe at Jefferies. "U.S. equities, particularly the tech

sector, was over-owned and some froth needed to be cleared."

Saturday's earnings report from legendary investor Warren

Buffett's Berkshire Hathaway has also done little to calm the

market's tech concerns: The conglomerate sold about half its

stake in Apple ( AAPL ) and let its cash pile soar to $277

billion in the second quarter. Berkshire often lets cash build

up when it can't find whole businesses or individual stocks to

buy at fair prices.

Another source of volatility has been the unwind of a

popular trade in which investors borrowed in Japanese yen to

fund bets on a broad range of risky assets, from stocks to

high-yielding global currencies. The Japanese yen surged to its

highest against the dollar since January.

Jean Boivin, an economist at asset manager BlackRock,

said the carry trade was "an anchor in global markets" which was

shaken when the Bank of Japan hiked interest rates last week: a

move that ended eight years of negative interest rates and

spurred the carry trade reversal.

"As we get confirmation that the Bank of Japan is not on a

very hawkish path, we will see calm coming back into the global

markets," Boivin said.

A lack of major economic data releases until the consumer

price report on Aug. 14 could keep markets on edge in coming

days.

Still, some market participants are more than happy to buy

on the cheap. Indeed, history is firmly on the side of dip

buyers.

Take the Nasdaq Composite, which slipped into a

correction - defined as a 10% drop or more from an all-time high

- last week. Over the past 44 years, the index has slipped into

correction territory after hitting a new high 24 times, or about

once every two years, according to a Reuters analysis of LSEG

data. In two-thirds of these cases, the index traded higher a

month after entering correction territory.

"Sell-offs that manifest themselves through wild swings in

the currency markets are sharp and swift, but usually very short

lived," Jamie Cox, managing partner for Harris Financial Group,

said in written commentary. "Some say this is overdue; I say use

this downturn to pick up some deals."