LONDON (Reuters) - World stocks took another dive on Friday despite early attempts at a rebound in Europe while currency dealers drove the Japanese yen to a 14-month high against the dollar, throwing out risky leverage.

Wall Street looked set for a weak opening.

Everyone's still scared and many people want to cash out in the short term, said Alex Huang, vice president at Mega Securities in Taiwan.

Europe's FTSEurofirst 300 was down 0.5 percent in roller-coaster trading. It tumbled at the start of the day then rose into positive territory before turning again.

Britain's FTSE 100 was down 0.3 percent, Germany's DAX was down 0.5 percent and France's CAC 40 fell 0.4 percent.

Earlier, Japan's Nikkei plummeted more than 5 percent to post its biggest one-day percentage loss in nearly six years.

The benchmark fell 874.81 points, or 5.42 percent, to end at 15,273.68, the lowest since August 7, 2006. The broader TOPIX lost 5.55 percent to 1,480.39, the lowest finish since July 2006.

Markets are being battered by fears of financial instability following troubles with risky U.S. mortgages and a squeeze on credit that has prompted central banks to push money into the financial system.

The U.S Federal Reserve, for example, pumped $17 billion of reserves into the banking system on Thursday and said it was ready to undertake further operations as needed.

Despite such attempts to build confidence, MSCI's main world index is down 12 percent from an all-time peak hit about a month ago.

During trade on Thursday, the VIX index ., which reflects volatility on the S&P 500, rose to its highest level in about five years.

Many long-term investors and analysts, however, continue to maintain that economic fundamentals bode well for the future and current stock losses may turn out to be a good buying opportunity.

While the global economy's strength is a '˜known known', the financial markets are struggling with the '˜known unknown' of how far the credit market turmoil will extend, ING said in a note.

For now, we expect limited damage to the real economy, it said.

CURRENCIES, BONDS

Japan's yen jumped to a 14-month high versus the dollar as investors dumped carry trade positions in which they have borrowed yen to fund investments in higher-yielding assets.

The dollar was pushed down more than 2 percent at one point to a low of 111.62 yen, last seen in June 2006, while the euro dropped below key support of 150 yen for the first time this year.

The dollar was later down around 1 percent at 113.16 yen, while the euro stood at 152.19.

Sentiment is just really bad right now, said a trader at a U.S. brokerage in Tokyo. All people are thinking about is selling currencies against the yen to avert risk.

The euro was up 0.17 percent at $1.3446.

Safe-haven government bonds were in demand. Citi's composite world bond index was below 3.5 percent at the close on Thursday for the first time since the end of March.

We are still in this environment of a flight to quality bid, said Nathalie Fillet, senior interest rate strategist at BNP Paribas in London.

The two-year Schatz yield was at 3.962 percent, after marking its biggest one-day drop in over five years on Thursday which pushed it as low as 3.863 percent.

The 10-year Bund was yielding 4.245 percent after having fallen as low as 4.221 percent earlier.

Wall Street looked set for a weak opening.

Everyone's still scared and many people want to cash out in the short term, said Alex Huang, vice president at Mega Securities in Taiwan.

Europe's FTSEurofirst 300 was down 0.5 percent in roller-coaster trading. It tumbled at the start of the day then rose into positive territory before turning again.

Britain's FTSE 100 was down 0.3 percent, Germany's DAX was down 0.5 percent and France's CAC 40 fell 0.4 percent.

Earlier, Japan's Nikkei plummeted more than 5 percent to post its biggest one-day percentage loss in nearly six years.

The benchmark fell 874.81 points, or 5.42 percent, to end at 15,273.68, the lowest since August 7, 2006. The broader TOPIX lost 5.55 percent to 1,480.39, the lowest finish since July 2006.

Markets are being battered by fears of financial instability following troubles with risky U.S. mortgages and a squeeze on credit that has prompted central banks to push money into the financial system.

The U.S Federal Reserve, for example, pumped $17 billion of reserves into the banking system on Thursday and said it was ready to undertake further operations as needed.

Despite such attempts to build confidence, MSCI's main world index is down 12 percent from an all-time peak hit about a month ago.

During trade on Thursday, the VIX index ., which reflects volatility on the S&P 500, rose to its highest level in about five years.

Many long-term investors and analysts, however, continue to maintain that economic fundamentals bode well for the future and current stock losses may turn out to be a good buying opportunity.

While the global economy's strength is a '˜known known', the financial markets are struggling with the '˜known unknown' of how far the credit market turmoil will extend, ING said in a note.

For now, we expect limited damage to the real economy, it said.

CURRENCIES, BONDS

Japan's yen jumped to a 14-month high versus the dollar as investors dumped carry trade positions in which they have borrowed yen to fund investments in higher-yielding assets.

The dollar was pushed down more than 2 percent at one point to a low of 111.62 yen, last seen in June 2006, while the euro dropped below key support of 150 yen for the first time this year.

The dollar was later down around 1 percent at 113.16 yen, while the euro stood at 152.19.

Sentiment is just really bad right now, said a trader at a U.S. brokerage in Tokyo. All people are thinking about is selling currencies against the yen to avert risk.

The euro was up 0.17 percent at $1.3446.

Safe-haven government bonds were in demand. Citi's composite world bond index was below 3.5 percent at the close on Thursday for the first time since the end of March.

We are still in this environment of a flight to quality bid, said Nathalie Fillet, senior interest rate strategist at BNP Paribas in London.

The two-year Schatz yield was at 3.962 percent, after marking its biggest one-day drop in over five years on Thursday which pushed it as low as 3.863 percent.

The 10-year Bund was yielding 4.245 percent after having fallen as low as 4.221 percent earlier.

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