Japanese stocks fell on Thursday after the yen spiked to a five-month high against the dollar overnight, with investors seeking to trim riskier bets amid growing concerns about the health of the global economy.

Doubts about the prospects for a swift and strong recovery also weighed on oil prices, which tumbled more than 4 percent on Wednesday, but other Asian stock markets steadied after a late rally on Wall Street.

As the confidence in recovery shown in the second quarter further evaporated, money found its way into government bond markets. U.S. Treasury prices shot up sharply after a $19 billion auction of 10-year debt met surprisingly strong demand, and two-year Japanese government bond yields fell to a 3- year low.

As optimism over the outlook for the global economy had gone too far, such a view has been fading. It will take a while before we see the economy recover, said Akitsugu Bandou, a senior economist at Okasan Securities.

The dollar and the euro both fell more than 2 percent against the yen on Wednesday, posting their sharpest one-day drops since March.

The rise in the yen, which benefits from risk aversion trades, was exacerbated by automatic dollar sell orders that kicked when it fell through 94 yen, traders said.

The yen lost some ground on Thursday, with the dollar up about 0.6 percent at 93.33 yen and the euro trading around 129.70 yen.

The dollar remains vulnerable as U.S. Treasury yields slid yesterday, narrowing the dollar's yield advantage over the yen, said Minoru Shioiri, senior manager of forex trading at Mitsubishi UFJ Securities.

But the greenback is unlikely to plunge against the yen during Tokyo trade as those who needed to cut long dollar positions have already dumped enough dollars.

STOCKS STRUGGLE

Japan's Nikkei average <.N225> fell 0.5 percent, touching a near two-month low and down for a seventh straight day.

It is mostly about the yen today. The stock market is on the backfoot as the currency not only sliced below the 94 yen threshold but went on to advance below 92 yen. This is not good news for exporters, said Yumi Nishimura, a deputy general manager at Daiwa Securities SMBC.

MSCI's measure of stocks elsewhere in the Asia-Pacific <.MIAPJ0000PUS> was barely moved, clinging to gains of more than 27 percent so far this year.

The Dow and the Nasdaq eked out small gains on Wednesday while better-than-expected results from aluminum giant Alcoa Inc after the Wall Street close also lent support in Asia.

Alcoa posted a smaller-than-expected second-quarter loss, kicking off the U.S. earnings season with a somewhat positive tone and sending its shares up about 5 percent after hours.

The Indonesia's stock market <.JKSE>, one of Asia's top performing indexes this year, opened modestly higher after provisional presidential poll results showed a resounding victory for incumbent Susilo Bambang Yudhoyono, who has promised more economic reform and anti-corruption measures.

U.S. crude oil futures rose toward $61 a barrel, recovering from a seven-week low hit on Wednesday after oil reserves data from the U.S. Energy Information Administration showed a larger-than-expected rise in distillates.

It's no more than a mild correction from the earlier decline that reflected the EIA report, said David Moore, commodity analyst with the Commonwealth Bank of Australia.

There are still concerns about the outlook for demand, particularly in the U.S. But much of the possible decline in oil prices has already happened. If we did dip below $60, you would probably see some people who might see it as a buying opportunity.

Japan