Asia slips as risk aversion prevails, dollar flies high

TOKYO (Reuters) - Asian stocks fell to a two-month low on Thursday as nervous markets recoiled on worries about an earlier U.S. interest rate hike, while such a prospect helped send the dollar to a 12-year high against the euro.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.4 percent after touching its lowest since January. Japan's Nikkei <.N225> dipped 0.1 percent and Australian and South Korean shares lost 1.1 percent and 0.7 percent.

Riskier assets both in the United States and elsewhere have come under pressure after Friday's robust U.S. employment data increased expectations that the Federal Reserve could raise rates as soon as June -a prospect that appeared relatively more remote a few weeks ago.

The possibility of higher U.S. yields siphoning away funds from riskier assets gave the S&P 500 its worst decline in two months overnight and emerging market stocks <.MSCIEF> declined to their lowest since early January. Mexico's peso weakened to an all-time low.

Renewed concern about Greece's debt talks with euro zone partners and deflationary pressures in China have also weighed on emerging markets in general. China will release industrial output, retail sales and investment data later in the day.

In currencies, the euro fetched $1.0713 after touching a 12-year trough of $1.0666. Downward pressure on the common currency increased after the European Central Bank kicked of its quantitative easing program and began its bond-buying on Monday.

"In addition to the ECB's starting its bond buying, Greek concerns are likely to weigh on the euro again this week, when there are several Greek-related events scheduled," said Masafumi Yamamoto, market strategist at Praevidentia Strategy in Tokyo.

Technical talks between finance experts from Athens and its international creditors are due to start later in the day with the aim of unlocking further funding.

The dollar was steady at 121.13 yen , pulled down from an eight-year high of 122.04 scaled overnight as the broad slide in equities favored the safe-haven yen.

Hit by the greenback's broad strength, the Australian dollar hovered close to a six-year trough of $0.7603 reached on Tuesday.

U.S. crude oil posted a modest bounce after falling sharply overnight on the dollar's appreciation, which makes commodities denominated in the greenback costlier for holders of other currencies. [O/R]

U.S. crude was up 1.1 percent at $48.83 a barrel after falling 3.4 percent the previous day.

(Editing by Kim Coghill)

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