* Copper lowest since 2010, gold hits 5-1/2 mth high
* Stocks tumble in Europe, Wall Street to start down around 0.2 pct
* China central bank ready to ease policy if needed - Reuters report
* Yen edges higher as Australian dollar loses ground
By Marc Jones
LONDON, March 12 (Reuters) - A fall in copper to near four-year lows combined with increasing concern about China's economic slowdown sent a wave of unease on Wednesday through world financial markets.
Global stocks fell for a fourth day and copper, often regarded as a proxy for China's economic fortunes, hit its lowest level since 2010 after Shanghai futures had again fallen by their 5 percent daily limit.
U.S. stock futures prices pointed to another negative start for Wall Street later, with little in the way of U.S. data to drag attention away from the China anxiety.
In Europe, bourses from London to Lisbon tumbled and safe-haven German government bonds were in demand as the jitters added to the effects of the tug-of-war over Crimea, which has pitted Russia against Ukraine and the West.
"Markets are watching what is happening in copper with awe and trepidation," said Societe Generale head of currency strategy Kit Juckes. "It's partly ongoing concern about Chinese growth (or lack thereof) and nagging worries about the Ukraine. And partly it is just that the commodity bubble burst last year and not everyone noticed."
Copper's fall follows China's first domestic bond default which has raised concerns about a possible unravelling of the many loan deals which have used the metal as collateral.
Chinese firms that have difficulty raising loans have often bought copper as security for funds they borrow, but the 14 percent drop in its value this year is making banks more wary about the practice.
The metal has been in freefall for the last three days but the worries finally appeared to be catching up with other markets. Stocks across Asia - although ironically not in China - had seen sizeable falls, while the Australian dollar, Chilean peso and South African rand, currencies highly sensitive to commodities, all buckled.
The aussie was last down 0.4 percent at $0.8946 though traders said it could have fallen much more had it not been for demand created by a big A$7 billion bond sale.
Japan's Nikkei retreated 2.6 percent, continuing the see-saw pattern of the last couple of months, while Australian stocks shed 0.6 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.2 percent.
That mirrored a lacklustre performance on Wall Street, where soft data left investors no wiser on whether the U.S. economy's troubles were weather-related or something more worrisome.
Economists are concerned that recent moves by Beijing to stamp out speculation on its rising currency and overly easy lending may have overshot and will damage the world's second largest economy.
This is adding to broader strains on emerging markets as they try to cope with shifts in global attitudes while recovering economies such as the United States begin to phase out the cheap money churned out in recent years.
In Europe, the FTSEurofirst 300 index of top shares was down 1.2 percent before U.S. trading, with basic resources stocks dominated by mining firms losing 1.6 percent.
At least one U.S. scrap copper trader has suffered "large" losses after a buyer in China defaulted on a deal in the past week, one of the first signs that sinking prices and tightening credit are affecting the physical market.
Investors were hoping Chinese data on industrial output, retail sales and urban investment on Thursday might show where the economy is heading.
Reuters reported that China's central bank is prepared to loosen monetary policy if economic growth slows further by cutting the amount of cash that banks must keep as reserves. This was a positive sign for markets, but also a possible indication of Beijing's growing nervousness.
Citing sources involved in internal policy discussions, the report said an easing would happen if growth slips below 7.5 percent, and would be on top of money market operations and currency intervention through state banks that traders say have already loosened monetary conditions.
With the tensions over Ukraine in the background, U.S. government bonds began to gain after days of treading water. The dollar eased a touch on the yen to 102.72 as the Japanese currency also benefited.
According to a draft document seen by Reuters, EU member states have agreed the wording of sanctions on Russia, including travel restrictions and asset freezes against those they feel are responsible for violating the sovereignty of Ukraine.
Gold, another favourite of risk adverse investors, climbed to a 5-1/2 month high of $1,362.25 an ounce, while crude prices extended their pullback with U.S. oil down to $98.52, their lowest in a month and a half.
"The question in everybody's mind is - what is the biggest risk to oil? And it is China slowing down," said Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin in Sydney. "People have figured out that what happens in Ukraine doesn't matter to oil markets so much. It may impact other commodities, but not so much oil."