GLOBAL MARKETS: Asia shares skid in Asia but oil, yields stay high

SYDNEY - Share markets slipped on Monday in Asia as fresh fighting broke out between the United States and Iran, lifting oil prices, while bond yields stayed elevated after investors narrowed the odds on a U.S. rate hike.

Brent futures LCOc1 climbed 1.4% to $89.38 a barrel after U.S. forces struck two of Iran's launchers on its island of Larak on Sunday. In response, Iran was attacking U.S. forces stationed in Jordan, Fox News said.

The resulting risk to inflation kept bond markets on edge after Federal Reserve Chair Kevin Warsh emphasised on Friday the central bank had work to do to control inflation.

Markets reacted by lifting the probability of a September rate increase to 57%, shoving short-term Treasury yields sharply higher and flattening the curve. 0#USDIRPR

"We continue to expect that a hike won't come until December, though agree that the September meeting is live," said Michael Feroli, chief U.S. economist at JPMorgan.

"Moreover, regardless of the exact timing of hikes, Warsh's speech suggested a chair more willing to translate his concern about inflation into a policy tightening."

Key to the chance of an early hike will be the outcome of Friday's August payrolls report and consumer price data due on September 11.

Analysts are forecasting a bounce of 58,000 in jobs, following July's shock drop of 23,000, with unemployment holding at 4.1%. It would probably need a much weaker outcome to greatly lessen the risk of a September rate move.

The inflation threat is expected to spur New Zealand's central bank to hike rates for a second straight meeting on Wednesday, while the Bank of Canada is seen on hold, given the damage a trade war with the U.S. could do to the economy.

Higher yields combined with geopolitical stress to push Japan's Nikkei .N225 down 2.1%, while South Korean stocks KS11 fell 2.4%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.7%.

In Europe, EUROSTOXX 50 futures STXEc1 dropped 0.5%, while DAX futures FDXc1 eased 0.4%. On Wall Street, S&P 500 futures ESc1 dipped 0.3% and Nasdaq futures NQc1 shed 0.5%.

DOLLAR BACK ABOVE 160 YEN

Inflation and interest rates will be high on the menu when G20 finance ministers and central bankers meet in North Carolina on Monday and Tuesday.

In an interview with Reuters on Sunday, U.S. Treasury Secretary Scott Bessent said he planned to meet the head of the Bank of Japan amid speculation that it, too, will raise interest rates in September. 0#JPYIRPR

Analysts argue a series of hikes are needed to shore up the yen, which again slid past 160.00 per dollar on Friday.

Asked about the yen, Bessent said the move was "pretty well contained," suggesting the slide was not disorderly enough to trigger a repeat of joint Japan-U.S. intervention.

The dollar was steady at 160.00 yen JPY=EBS, still some way from the July top of 163.99.

Two-year Treasury yields <U@2YT=RR> held at 4.36%, after jumping almost 12 basis points on Friday. Yields on 30-year bonds were more contained at 5.2080% US30YT=RR, with investors taking some comfort from Warsh's emphasis on fighting inflation.

The euro was a shade firmer at $1.1591 EUR=EBS, having slipped 0.6% on Friday after Warsh's speech.

Data on EU inflation due this week is expected to cement market pricing for another hike from the European Central Bank when it meets on September 10.

In commodity markets, U.S. crude CLc1 rose 1.3% to $84.50 a barrel. Gold was a fraction firmer at $4,454 an ounce XAU=, having shed 3.2% on Friday as yields spiked. GOL/

-Reporting by Wayne Cole; Editing by Clarence Fernandez/Reuters