By Carolyn Cohn
LONDON (Reuters) - World stocks dipped anew on Friday after suffering their largest monthly fall for eight months in May and safe-haven government debt yields dropped to record lows on worries about the Chinese economy and Spain's parlous finances.
With the euro zone debt signals flashing red again, record after record has tumbled across asset classes as investors scramble to find security for their cash.
The euro hit its lowest against the dollar in nearly two years at $1.2342 and 10- and 30-year German Bund yields hit all-time lows.
The German two-year bond yield fell below zero for the first time, meaning investors are paying for the right to hold that debt. Other "safe havens", Denmark and Switzerland said they were prepared to set negative interest rates to prevent their currencies spiraling.
Madrid's need to recapitalize its troubled banks and shore up its heavily indebted regions is the latest focus for turbulent markets, though IMF Managing Director Christine Lagarde denied late on Thursday that the Fund was preparing financial assistance for Spain.
"It is looking very bearish for the euro with the latest capital flows data showing a significant amount leaving Spanish banks, all of which indicate they will probably need official help," said Peter Kinsella, currency strategist at Commerzbank.
Ten-year U.S. Treasury yields steadied after hitting 1.53 percent on Thursday, the lowest on record going back more than two centuries, according to Reuters data.
The dollar index rose to a 21-month high.
The gloomy economic news was not confined to Europe.
Weighing on the global demand outlook, China's official purchasing managers' index fell to 50.4 in May from April's 13-month high of 53.3.
Euro zone purchasing managers' surveys gave no comfort, with final May manufacturing PMI a fraction above flash estimates at a flimsy 45.1, far below the 50 threshold which denotes expansion.
In Spain, where investors are watching an unfolding banking crisis, the index fell to 42 in May, the lowest level since May 2009, adding to evidence that its recession is likely to be deep.
Spanish bond yields have surged this week to close to their highest level since the launch of the euro, raising questions about the country's ability to fund itself over the longer term.
In stark contrast, UK government bond yields hit record lows as investors dashed to safe-haven debt, though Britain's manufacturing PMI data fell to a three-year low in May.
"There is nothing to resist these moves," a bond trader said. "A policy response might stop it but there is no sign of that."
STOCKS ADD TO MAY SELL-OFF
The MSCI world equity index <.MIWD00000PUS> dipped 0.6 percent towards the year's lows. World stocks fell more than 9 percent in May, their worst monthly performance since September 2011.
European stocks <.FTEU3> fell 1.2 percent to their lowest levels this year.
In the hunt for safety, the yen hugged an 11-1/2 year high against the euro hit on Thursday. Japanese Finance Minister Jun Azumi said Japan would act if excessive yen strength continued.
U.S. employment data later in the session and upcoming UK market holidays on Monday and Tuesday were putting a brake on more extreme trading activity.
Non-farm payrolls, due at 1230 GMT, are forecast to show a 150,000 rise in May.
(Additional reporting by Anirban Nag, editing by Mike Peacock)