Updates at 0500 GMT

By Rae Wee

SINGAPORE, Aug 2 (Reuters) -Asian shares were headed for their worst day in over two years andU.S. Treasury yields slid, while the Swiss franc and yen rose on safety bids on Friday after weaker-than-expected U.S. factory data sparked fears of a worsening economic outlook.

Japan's Nikkei .N225 was meanwhile headed for its worst day in over four years, tracking a slide on Wall Street and weighed down by a surging yen, as well as uncertainty over how high domestic interest rates could rise.

The dour mood in Asia, sparked by Thursday's data which showed a measure of U.S. manufacturing activity dropped to an eight-month low in July, looked set to continue into Europe, as EUROSTOXX 50 futures STXEc1 fell 0.8%.

FTSE futures FFIc1 were little changed, while U.S. stock futures extended their declines. Nasdaq futures NQc1 tumbled 1.35% and S&P 500 futures ESc1 fell 0.76%.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slumped 2.54%, tracking a sharp selloff on Wall Street, and was headed for its worst day since June 2022.

Broad risk-off moves were evident across markets on Friday after the weak U.S. ISM manufacturing report stoked fears of an economic downturn and led investors to worry that the Federal Reserve may be behind the curve in cutting rates .

Geopolitical tension also weighed on sentiment, after the Israeli military said on Thursday that the head of Hamas' military wing, Mohammed Deif, was killed in an Israeli airstrike in Gaza last month. The comments came a day after the group's political leader Ismail Haniyeh was killed in Tehran.

"At the moment ... if there's any signs of weakness, then the market will grasp them. It's looking for bad news," said Rob Carnell, ING's regional head of research for Asia-Pacific.

In Asia, Japan's Nikkei .N225 suffered heavy losses, tumbling more than 5% to fall below the 37,000 level for the first time since April.

It was last 4.9%lower, on track for its steepest daily fall since March 2020.

The Nikkei's decline has also come on the back of sharp yen gains after the Bank of Japan (BOJ) on Wednesday raised interest rates to levels unseen in 15 years and unveiled a detailed plan to slow its massive bond buying.

Hong Kong's Hang Seng Index .HSI similarly tumbled 2.13%, while Chinese blue-chips .CSI300 shed 0.66%.

Focus now turns to the closely watched non-farmpayrolls report later on Friday for further clues on the health of the U.S. labour market and the broader economy, likely to guide investor expectations of the pace and scale of Fed cuts expected later this year.

Futures point to a roughly 29% chance of a 50-basis-point cut from the Fed in September. FEDWATCH

"Clearly, all the focus now falls on U.S. non-farmpayrolls in the session ahead and Asia-based equity traders will be highly cognizant that they will have to hold positions through the U.S. session with the threat of gapping risk on the Monday open," said Chris Weston, head of research at Pepperstone.

"With the market firmly moving to a mantra that bad news is bad news for risky assets and sentiment, where swaps are pricing an element of more emergency cuts, poor U.S. job numbers will not be digested well at all."

In currencies, the yen JPY=EBS edged 0.12% higher to 149.18 per dollar, hovering nearan over four-month high.

It was eyeing a 3% rise for the week, with gains in the Japanese currency further exacerbated by safety flows on Friday.

The Swiss franc CHF=EBS likewise got a lift from the risk-off mood and rose to its strongest level since early February at 0.87145 per dollar.

Sterling GBP=D3 fell 0.05% to $1.2728, after the Bank of England cut interest rates from a 16-year high on Thursday.

Also reflecting investor worries about a U.S. economic slowdown, the 10-year Treasury yield US10YT=RR fell to a six-month low of 3.9440% in early Asia trade as investors poured into the safe-havenbonds.

Bond yields move inversely to prices.

The two-year yield US2YT=RR, which typically reflects near-term rate expectations, slumped to its lowest since May 2023 of 4.1090%, and was last at 4.1409%.

In commodities, oil prices edged higher on Friday though were set for a fourth weekly decline as signs of disappointing global fuel demand growth outweighed fears of supply disruptions in the key Middle East production region. O/R

Brent LCoC1 was last up 0.6% to $79.99 a barrel, while U.S. crude CLc1 rose 0.63% to $76.79 per barrel.

Spot gold XAU= firmed 0.55% to $2,458.99 an ounce. GOL/

Editing by Sam Holmes, Christopher Cushing and Christian Schmollinger

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