* Euro skids as ECB cuts rates, plans on asset buying spree
* European stocks surge as short-term yields go negative
* Japanese stocks near highest since mid-2008
* Wall St turns cautious ahead of payrolls test
By Wayne Cole
SYDNEY, Sept 5 (Reuters) - The euro was deep under water on Friday having suffered its steepest daily fall in three years after the European Central Bank stunned markets by cutting interest rates and embarking on a trillion-euro asset-buying binge.
The aggressive shift sent short-term bond yields into negative territory in Germany, France, the Netherlands and Austria, giving investors an overwhelming incentive to sell euros for higher yielding assets elsewhere.
That stood in stark contrast to the United States where upbeat data only reinforced the case for the Federal Reserve to wind down its stimulus, driving the dollar higher and sideswiping oil and gold in the process.
Stock prices in Europe climbed to new records in response, though Wall Street succumbed to a bout of jitters ahead of the U.S. payrolls report due later on Friday.
The Dow fell 0.05 percent, the S&P 500 0.15 percent and the Nasdaq 0.22 percent.
In Asia, Tokyo's Topix added 0.44 percent to be within a whisker of its January peak. A break there would take it to levels last seen in July 2008.
MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.2 percent having already reached its highest since early 2008.
The euro was licking its wounds at $1.2937, after hitting a 14-month low of $1.2920 overnight and seemed destined to test the July 2013 trough of $1.2898.
It hit a one-month low on the yen at 135.97 and a 15-month trough on the Australian dollar at A$1.3798.
The collapse came after ECB President Mario Draghi announced a range of rate cuts and a new plan to push money into the flagging euro zone economy.
In a news conference, Draghi said the aim was to expand the bank's balance sheet back to the heights reached in early 2012, which equates to a rise of around 50 percent or 1 trillion euros in new assets.
"The Governing Council will be pumping money into the economy while simultaneously penalizing European banks that do not spend it," Valentin Marinov, an analyst at CitiFX.
TURBO-CHARGED
"To the extent that at least some part of that money will head abroad, the turbo-charged easy money will likely invigorate euro-funded carry trades," said Marinov.
The already hugely popular carry trade is where investors borrow at low rates in say euros or yen, to buy higher yielding assets in other countries. The latter include Australia, Canada, New Zealand and a whole range of emerging market nations.