Aug 2 (Reuters) - A look at the day ahead in Asian

markets.

Falling bond yields and the prospect of lower interest rates may

have helped fuel investors' animal spirits and the recent mega

rally in world stocks, but it's a different story when borrowing

costs are falling because recession fears are rising.

That's the market landscape investors in Asia wake up to on

Friday after disappointing U.S. factory data on Thursday slammed

U.S. Treasury yields, Wall Street, and stocks, prompting traders

to start betting on a possible 50 basis point rate cut from the

Fed next month rather than 25 bps.

Figures showing a much larger-than-expected contraction in U.S.

manufacturing activity last month followed purchasing managers

index data earlier on Thursday that painted a similar picture in

Germany, Japan and China.

China's 'unofficial' Caixin manufacturing PMI was

particularly galling at 49.8, signaling a contraction, compared

with a consensus forecast of 51.5 and fairly steady growth.

With China's economy already in the doldrums, renewed weakness

in Europe and the U.S. is bad news for global growth. Central

bank rate cuts, the latest of which came from the Bank of

England on Thursday, may have to be deeper and faster than

analysts and policymakers had bargained for.

The 10-year U.S. Treasury yield tumbled 13 basis points, its

biggest one-day fall this year, and is now below 4.0%. Never

mind the great rotation out of Mega Tech into small caps,

investors seem to be rotating out of stocks and into the safety

of U.S. Treasuries.

Apple ( AAPL ), Amazon ( AMZN ) and Intel ( INTC ) reported earnings after the U.S.

close on Thursday and the early signs are investors were not

impressed. Intel's ( INTC ) outlook, in particular, was bleak, and shares

fell 15% in after-hours trading.

Investors in Asia will be hoping for a calmer end to a momentous

week, the highlight of which was a rate hike in Japan.

As Washington-based economist Phil Suttle puts it: "Judged

by the actions of other central banks, these were hardly major

moves. Judged by Japanese policy over the past 25 years,

these were major moves."

So far this year the Bank of Japan has raised rates twice, ended

yield curve control and started QT, Suttle noted.

Asia's economic calendar on Friday is light, with only South

Korean inflation likely to be a market-mover. A Reuters poll

suggests the annual rate ticked up to 2.50% in July from a

one-year low of 2.40% in June.

Swaps market pricing points to 35 basis points of easing

from the Bank of Korea this year. Barclays economists on

Thursday forecast quarter-point rate cuts in October and

November.

Asia's corporate calendar on Friday is busier, with earnings

reports due from Japan including Nintendo ( NTDOF ) and Sumitomo Mitsui

Financial Group ( SMFG ).

Here are key developments that could provide more direction

to markets on Friday:

- South Korea inflation (July)

- Australia producer price inflation (Q2)

- U.S. non-farm payrolls (July)