Global stocks fell to their lowest in nearly six weeks on Friday and government bonds rose as a huge earthquake in Japan and expectations Portugal will have to seek financial aid prompted a sell-off in risky assets.

Portugal's 10-year bond yield and debt insurance costs rose after government plans for additional spending cuts left investors unconvinced, raising expectations the country would need a future bailout.

Japanese stock futures fell nearly 5 percent and the yen fell briefly after the quake, the biggest to hit Japan in 140 years, struck the northeast coast and triggered a 10-meter tsunami.

Investor morale has been souring in the past few weeks as concerns rose that unrest in Libya and the wider Arab world may further boost oil prices, and resulting inflationary pressures could slow the global economic recovery.

Markets are in a correction mode. If you get natural disasters at a time when the markets are worried about something else, they can compound the worries, said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.

But there is no reason to suggest that the stock market is going to collapse. The underlying tendency of the market is still to have net buyers as money rotates at the margin out of safe-haven bonds.

World stocks as measured by MSCI were down 0.6 percent to 334.82, falling to their lowest level since the end of January. The MSCIindex had hit 30-month highs in mid-February.

The FTSEurofirst 300 index of top European shares <.FTEU3> fell 0.8 percent after earlier hitting a three-month low. MSCI emerging stocks <.MSCIEF> were down 1.1 percent.

The yen fell as low as 83.29 per dollar, but it later recovered to 82.22, drawing support from falling risk appetite and expectations of repatriation in flows.

U.S. stock futures were down 0.1 percent, pointing to a weaker open on Wall Street, after a heavy sell-off in the previous session.

OIL FALLS

U.S. crude oil fell 3.1 percent to $99.53 a barrel while Brent crude lost 2.5 percent to $112.58. OPEC said in its report it was ready to take action to increase supply if needed.

A protest in the Saudi Arabian city involving 200 protesters has so far had little impact on oil prices.

Bund futures were up 46 ticks while the euro fell 0.2 percent against the dollar.

The cost of insuring Portuguese debt against default for five years rose 16 basis points to 520 bps, while the 10-year bond yield held at euro lifetime highs.

The yield spread between Portuguese and German 10-year government bonds was 13 basis points more on the day at 457 bps, its widest since November.

Euro zone leaders are set to agree a competitiveness pact at a summit on Friday but seem unlikely to resolve sharp differences over the size and scope of the rescue fund that Lisbon would tap if it decided to seek help.

Portugal announced additional spending cuts and reforms to cut its deficit by an extra 0.8 percent of gross domestic product this year in an attempt to stave off intense pressure to take a bailout.

I think this is Portugal still desperately trying to prove that it has the political will to push through these painful measures, said Colin Ellis, chief economist at BVCA in London.

Ultimately however, the interest rates they're paying in the market are unsustainable. There's still a good chance they will need some support at some stage.

(Additional reporting by Atul Prakash and Kirsten Donovan; Editing by Catherine Evans)

Japan Libya Quake Portugal