European stock index futures fell on Thursday, as riskier assets across the board slumped with investors growing wary about taking risks ahead of a key European leaders' summit on Sunday.

The euro dipped as European policymakers struggled to reach consensus on the region's sovereign debt crisis, and concerns about the global economy hit industrial metals such as copper and commodity-linked currencies such as the Australian dollar.

The European stock index futures was down 1.3 percent, while futures for Germany's DAX and France's CAC-40 were also down more than 1 percent and financial spreadbetters called the FTSE 100 <.FTSE> to open as much as 1.2 percent lower. <.EU> <.L>

On Thursday, risk aversion prompted investors to trim cross-yen pairs, pushing the Aussie down 0.7 percent against the yen.

Gold resumed its inverse correlation with the greenback and fell more than 1 percent, weighed down by a firmer dollar, as measured by an index against six major currencies.

But investors looking for alternative assets found a place in the Asian bond market, where Korean National Oil Corp's (KNOC) 5-year dollar bond drew strong interest, helping soothe sentiment and limiting the spread on a key Asia credit default swap index.

KNOC sold its bonds at a tighter spread than the initial guidance and a strong appetite in the secondary market narrowed the yield further by about 10 basis points on Thursday, with the issue trading at around 295 basis points over U.S. Treasuries.

The $1 billion bond was eight times subscribed.

Investors from Asia accounted for 44 percent, U.S. 40 percent and Europe 16 percent.

The investors were eager to play with broader sentiment turning ... even though the EU isn't completely out of the woods, said a banker close to the deal.

Korean issuers have been among the most active issuers in Asia, and their activity may pick up as they will likely face calmer conditions in the dollar bond market following the swap agreement between Seoul and Tokyo on Wednesday.

It is positive for Korean borrowers as it will likely reduce external risk for South Korea, said Young Sun Kwon, Hong Kong-based economist with Nomura International.

The improved environment helped contain spreads on the iTraxx Asia ex-Japan investment grade index, a gauge for whether investor risk appetite is returning, which widened by a couple of basis on Thursday.

But the spread of bonds issued by the European financial stability facility and German government bonds widened by around 20 basis points this week, underscoring a lack of investor confidence in the progress to contain the debt crisis.

Seeing how European policymakers are struggling to come to an agreement, investors are doubtful if they can really move forward with the rescue fund, said Akane Enatsu, credit analyst at Barclays Capital in Japan.

ASIA SHARES FALL

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 2.7 percent, with the materials sector <.MIAPJMT00PUS> and the energy sector <.MIAPJEN00PUS> leading the decline, each falling over 4 percent.

Australian shares <.AXJO> slid 1.6 percent and ended at two-week lows on Thursday as miners sank after copper and gold prices fell, while Japan's Nikkei stock average <.N225> declined 1.0 0.9 percent. <.T>

U.S. stocks ended lower on Wednesday as sentiment was also undermined by the Federal Reserve's Beige Book report, which suggested the outlook for the U.S. economy grew dimmer in September.

Shanghai copper fell by its limit of 6 percent on Thursday, with the most-active January copper contract on the Shanghai Futures Exchange tumbling as low as 50,950 yuan ($7,989.024) per tonne in early trading.

This is mostly a reaction to the euro zone crisis, and a major correction after the recent rebound has ended, said Zhao Kai, an analyst at Jinrui Futures.

Spot gold dropped 1.7 percent to just above $1,610.00 an ounce on Thursday, on course for a fourth consecutive losing session, dragging both platinum and silver down by about 2 percent.

Oil trimmed earlier gains and deepened losses as other commodities fell. Brent crude futures dropped 0.3 percent to $108.05 a barrel, while U.S. crude futures fell 0.7 percent higher at $85.54 a barrel.

SAMURAI EYED

As safety assets are sought around the world, Japanese government debt market may offer a window of opportunity for investors while the samurai bond market may provide a forum for issuers looking for funding channels.

Non-Japanese issuers have been showing interest in tapping the s samurai market, as yields on safe-haven JGBs have been pinned to historically low levels and investors are keen to receive premiums, provided the issuers meet their criteria.

Japanese investors are facing an increasing difficulty managing their portfolio and demand is there for bonds offering good spreads, Barclays' Enatsu said.

But they are also conservative, and are looking not only at the credit rating of the issuer but also at whether an issuer has an event risk that's foreseeable, she said.

Samurai bonds are yen-denominated bonds issued in Japan by a foreign borrower.

Foreign investors were net buyers of JGBs for a third straight month in September, data from the Japan Securities Dealers' Association showed on Thursday as they stepped up their buying to 1.05 trillion yen ($13.6 billion) from 818.5 billion yen for August in their biggest purchase since May.

EURO UNDER PRESSURE

The euro fell 0.3 percent to $1.3707, having retreated from the previous day's intraday high of $1.3870, as European policymakers struggled to reach consensus on measures to contain the crisis.

French President Nicolas Sarkozy heightened concerns about progress by saying plans to tackle the euro zone debt crisis have stalled, with Paris and Berlin were at odds over how to increase the firepower of the region's bailout fund.

Investors are awaiting Sunday's EU Summit and details about plans to contain the festering crisis by beefing up the rescue fund.

A report in the Financial Times on Thursday said the plan to strengthen Europe's banking system is set to fall short of market expectations.

(Additional reporting by Umesh Desai in Hong Kong, Akiko Takeda in Tokyo and Carrie Ho in Shanghai; Editing by Richard Borsuk)

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