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Japan buys yen to halt runaway dollar

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Long bonds tank as higher-for-longer message sinks in

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MSCI AxJ index eyes 3% drop this week

By Tom Westbrook

SYDNEY, Sept 23 (Reuters) - Asian stocks limped toward a fourth straight weekly decline on Friday and bonds nursed big losses as investors scrambled to catch up with the U.S. Federal Reserve's interest rate outlook, while currency markets were on edge at the end of a wild week.

Fed members' projections for aggressive hikes and persistently high rates over the next year or so has unleashed another round of dollar buying that put other assets on the run.

World stocks hit two-year lows on Thursday and are down 3% this week. The euro and yen fell to 20-year lows and on Thursday, Japanese authorities stepped in to the market for the first time since 1998 to buy yen and arrest its slide.

The resultant spike has the yen up to 142.20 per dollar and on course for its best week in more than a month and has, for now, tapped the brakes on broader dollar gains.

In regional markets MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5% to a two-year low. It is down 3% this week. Japan's Nikkei was closed for a public holiday marking the autumn equinox.

Overnight, Wall Street indexes fell and longer-dated U.S. Treasuries were dumped - sending the 10-year yield up about 20 basis points to 3.71% - as traders tried to adjust to the prospect of U.S. interest rates above 4% for some time.

"The 10-year was playing catch up to the newly calibrated cash rate," said Westpac's head of rates strategy, Damien McColough, in Sydney.

"If you believe the front-end is going to peak at 4.60% can you really sustain 10-year bond yields at 3.70%?" he said.

"It's very skittish price action ... I think that this volatility continues in all markets in the near term (until) the rates market settles."

S&P 500 futures drifted 0.1% higher and European futures rose 0.4% early in the Asia session.

INTERVENTION

Interest rates are rising sharply almost everywhere in the world, with Britain, Sweden, Switzerland and Norway among hikers this week - driving heavy selling in European bond markets, particularly of gilts.

But the Fed's outlook has overshadowed that in the currency market as both safety flows and higher yields help the greenback, while an energy crisis and war on the doorstep weighs down the euro.

Preliminary manufacturing surveys in Europe and Britain's new finance minister announcing his "Growth Plan" highlight the day ahead.

The euro was last at $0.9844, a fraction over Thursday's 20-year trough at $0.9807 -- although all eyes are on the yen.