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The precious metal's 20 percent slide from a record high near $50 an ounce hit last Thursday rippled into other markets such as crude oil and the Australian dollar, encouraging investors to take profits after a recent rally.

The pull-back in commodities may take a toll on top global miner BHP Billiton (BHP.AX) and its rivals and weigh on the broader Australian share market .AXJO though record earnings from National Australia Bank (NAB.AX) may clip sharp drops.

Shares outside Japan .MIAPJ0000PUS fell for the third consecutive day, moving further away from a three-year high tested last week, following the drop in commodity prices and weaker U.S. stocks. Japanese markets are shut for a holiday.

Notwithstanding this week's softness in global equities, partially fueled by some soft U.S. economic data, markets have been broadly steady after posting big gains last quarter.

"This is more of a consolidation phase and we are likely to see low double digit returns this year after a recent nice run up," said Binay Chandgothia, portfolio manager at Principal Global Investors in Hong Kong. The firm manages more than $200 billion in assets worldwide.

Reflecting that caution in credit markets, spreads on the benchmark iTraxx investment grade index for Asia ex-Japan widened slightly to 106/108 basis points after narrowing sharply in recent weeks.

COMMODITIES RETREAT

The Reuters-Jefferies CRB index .CRB, a global benchmark for commodities, fell nearly two percent on Wednesday, hit by the sell-off in silver and declines in coffee, sugar and cocoa.

Until this week's retreat, commodities have been the best performing asset class in the first four months of this year, up more than 13 percent.

Copper extended losses on Thursday, with London futures dropping to seven-week lows as concerns grew that Asian economies would probably sacrifice some growth in exchange for keeping inflation under check, reducing demand.

India lifted interest rates by an aggressive half point this week while a Reuters poll of economists marked down 2011 growth forecasts for India and Australia.

HAWKISH ECB

In currency markets, the dollar index .DXY plumbed another three-year low, its sixth in the last seven sessions, before recovering slightly after soft private payrolls data provided the latest indication of a sputtering economic recovery.

The numbers raised worries that Friday's crucial non-farm payrolls report will disappoint and prompted the euro to consolidate its gains near a 17-month high against the dollar as markets braced for more hawkish comments from the ECB.

It raised euro zone rates by a quarter of a percentage point to 1.25 percent last month, ending almost two years of record-low interest rates and beginning what economists expect to be a run of increases.

"Positioning is light going into the ECB and talk of double-no-touch 1.4750/1.4950 in options market may contain the range. But I expect the ECB to keep the 'strong vigilance' wording," a trader at a U.S. investment bank said.

In contrast, top Federal Reserve officials said on Wednesday U.S. inflation remained well under control, reaffirming the view that the Fed will keep policy ultra loose. That sent U.S. Treasury yields to their lowest levels since mid-March, with the 10-year yield falling to 3.23 percent, down nearly 40 basis points down in less then a month.

(Additional reporting by Ian Chua in SYDNEY and Umesh Desai; Editing by Tomasz Janowski)

Kenny said a deal had already been reached in principle to lower the nearly 6 percent interest rate on the European Union and International Monetary Fund 85 billion euros bailout, and that the details would be hammered out once Portugal finalized details of its pending bailout package.

"At the recent (euro zone) meeting in Brussels ... it was agreed that countries within the bailout package could have a reduction of interest rates applied to them," Kenny told Reuters Insider television.

Kenny said that once details were finalized for a bailout for Portugal, which said late on Tuesday it had reached a three-year bailout deal with the EU and IMF, Dublin could negotiate "an interest rate reduction which would be significant in Ireland's case."

But he refused to consider higher corporate tax rates in Ireland and said his visit to New York was partly to reassure American firms that might consider putting jobs in Ireland that the country's 12.5 percent tax rate was set in stone.

"The corporate tax rate is not negotiable," he said. "We are not moving from our 12.5 percent corporate tax rate. Our country is open for business."

'BREACH OF TRUST'

Kenny said any such tax hike "would be a massive breach of trust, particularly with American foreign direct investment in this country."

After a euro zone summit in March, Kenny said he had reached a deal in principle to cut Ireland's interest rate by 1 percent, but that he was not prepared to raise corporate taxes in return for the deal.

Portugal's caretaker Prime Minister Jose Socrates announced late on Tuesday that Lisbon had reached a bailout deal with the EU and IMF after weeks of talks, becoming the third euro zone country to do so, after Greece and Ireland.

The interest rate on Portugal's bailout, which Socrates' office says will total 78 billion euros, is expected to be set at a meeting of euro zone finance ministers in mid-May.

Ireland's rescue package agreed to last November has failed to resolve Ireland's banking crisis and Kenny's government, elected in February, has said the current package must be changed to avoid the risk of default.

The Fine Gael leader said his coalition government is committed to selling $2 billion euro worth of state-owned assets and that any sale will be decided on the basis of which deals could add most jobs to the beleaguered Irish economy.

On Ireland's troubled banks, Kenny said if Anglo Irish Bank needs more help that bondholders should expect to contribute.

"If a requirement comes in for further capital injection into Anglo Irish Bank, the government will treat that accordingly and we would look at the question of senior bond holders in a very different light than we did when we didn't decide to burn senior bond holders with either Allied Irish Bank or Bank of Ireland," he said.

A solution to Irish banks' funding crisis and a cut in the cost of the deeply unpopular EU-IMF bailout would be a huge coup for Kenny. But to get such a deal he will come under intense pressure to concede on Ireland's low company tax rate, viewed as an unfair advantage in other European capitals.

Kenny's government has said it wants to cut the taxpayers' bill for bailing out the banks -- 46 billion euros and climbing -- by imposing losses on unsecured senior bonds in Irish banks not covered by a state guarantee, valued at 16 billion euros.

(Reporting by Mark Egan; Editing by Peter Cooney and Vicki Allen)

Recent winners in the energy and industrials sectors were hit most, and a key indicator of investor worry rose for a fourth day in what some say is the outset of extended weakness for stocks.

"I think there is a chance that we put the high in for the year," said Doug Kass, founder and president of Seabreeze Partners Management in Palm Beach, Florida.

"Investors should err on the side of conservatism and be increasing their cash positions," he added.

The S&P energy sector .GSPE, up almost 12 percent so far in 2011, dropped 1.6 percent on Wednesday, while materials .GSPM fell 1.7 percent and industrials .GSPI lost 1.4 percent. Dow component Caterpillar Inc (CAT.N) lost 2.2 percent to $110.77 on Wednesday but is still up 18.3 percent for the year.

Reports showed activity in the vast U.S. services sector slowed and hiring by private companies was weaker than expected in April. The new orders index in the purchasing managers survey hit its lowest since December 2009.

The releases "call into question the bullish notion of a smooth, self-sustaining recovery," Kass said.

The data also prompted caution before Friday's jobs report for April, one of the most closely watched U.S. economic indicators.

The Dow Jones industrial average .DJI lost 83.93 points, or 0.66 percent, to 12,723.58. The Standard & Poor's 500 Index .SPX fell 9.30 points, or 0.69 percent, to 1,347.32. The Nasdaq Composite Index .IXIC dropped 13.39 points, or 0.47 percent, to 2,828.23.

The CBOE volatility index .VIX rose 2.3 percent to 17.08 for a rise of more than 17 percent over the past four sessions,

shifting its near-term momentum to positive for the first time in more than a month.

"This is the problem area, a potential new uptrend in the VIX," said Larry McMillan, president of McMillan Analysis Corp in a report. "The longer it holds above 16, the more the danger (for the stock market) grows."

In deal news, chip equipment maker Applied Materials Inc (AMAT.O) offered to buy rival Varian Semiconductor Equipment Associates Inc (VSEA.O) for $63 per share to get its hands on new technology to meet stronger demand for smartphones and solar equipment.

Varian shares surged 51.3 percent to $61.36 while Applied Materials fell 1 percent to $15.09.

Chip gear maker Novellus Systems (NVLS.O) jumped 6.5 percent to $32.92.

ConAgra Foods Inc (CAG.N) raised its bid for Ralcorp Holdings Inc (RAH.N) to $86 a share in cash from $82.

Shares of ConAgra rose 3.1 percent to $25.51, while Ralcorp, which owns the Post cereal brand, jumped 4.9 percent to $87.39.

About 8.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the largest volume since March 18 and above the average 7.74 billion shares traded daily so far in 2011. Volume was below last year's estimated daily average of 8.47 billion.

Decliners outnumbered advancers on the NYSE by a ratio of more than 2 to 1, while on the Nasdaq, more than eight stocks fell for every three that rose.

(Reporting by Rodrigo Campos; additional reporting by Leah Schnurr and Doris Frankel; Editing by Kenneth Barry)

John Williams, in his first speech as president of the San Francisco Fed, argued that the recent spike in commodity costs will likely be transitory.

"The economy today faces many pitfalls, but I don't believe that runaway inflation is one of them," Williams said, adding that he would not prejudge a possible need for additional bond purchases in the future.

In response to evidence of economic weakness last summer, the U.S. central bank in November announced it would buy some $600 billion in Treasury bonds in an effort to keep long-term borrowing costs low and support the recovery.

Eric Rosengren, the dovish president of the Boston Fed, who is a voter this year on the policy-setting Federal Open Market Committee, struck much the same note as Williams, saying a return to 1970s-style inflation was not likely.

He said tame wage growth and high unemployment are helping cushion some of the inflationary impact of higher food and energy costs, by keeping consumer inflation expectations under control.

A rise in inflation expectations can be self-fulfilling if it leads workers to demand higher wages.

JOB MARKET HEALING SLOWLY

But with high unemployment, workers have little power to demand higher wages because they can easily be replaced.

Another U.S. central bank official, Atlanta Fed President Dennis Lockhart, saw steady but modest job growth of about 200,000 jobs per month through the rest of the year after a slow spell.

"It may take three years before the size of the nation's work force reaches prerecessionary levels," he said in a speech in Atlanta.

The U.S. Labor Department will report figures for April nonfarm payrolls on Friday. Economists expect that 186,000 jobs were added in April, according to a Reuters poll.

Rosengren said increases in overall U.S. inflation due to supply shocks since the mid-1980s have generally been temporary, a pattern that should play out again.

"We should expect the impact on inflation to be transitory -- and that total inflation will converge back to core inflation, which remains well below 2 percent," he said.

The U.S. consumer price index jumped 2.7 percent in the year to March. But so-called core CPI, which excludes more volatile food and energy costs and is a gauge of underlying price trends, climbed just 1.2 percent. The Fed's informal target is 2 percent.

Not all Fed officials are equally sanguine about inflation. Richard Fisher, the Dallas Fed's hawkish president and also an FOMC voter this year, cited worries about rising prices.

"The headline (inflation) numbers have gotten a little stout," he told reporters after a speech. "We have to carefully monitor" how inflation expectations evolve.

Fisher said the U.S. economic recovery remained remarkably resilient despite shocks from unusually harsh winter weather and higher energy prices that have sapped consumer budgets.

He predicted growth would gather steam again after posting a rather disappointing 1.8 percent annualized rate of expansion in the first quarter.

"A host of more timely indicators suggest that economic growth will likely pick up in coming months," said Fisher.

Still, he stopped well short of calling for near-term interest rate hikes.

READY TO FIGHT INFLATION

If inflation does begin to act up, officials said the Fed has both the tools and the will to bring up rates quickly.

"I am committed to responding decisively, and as forcefully as necessary," the Boston Fed's Rosengren said, "to ensure that long-term inflation expectations remain stable and that food and energy prices are not passing through to other prices."

In response to the worst recession in generations, the Fed slashed official borrowing costs to effectively zero and implemented an array of unorthodox lending facilities to heal frozen credit markets. Many of those have been shuttered as market conditions improved, but the controversial buying of assets to keep down long-term rates has continued.

"Should it prove necessary to counter inflationary pressures, I will be among the first to advocate the unwinding of some of the stimulus we have provided," Fisher said.

Fisher cited a rebound in manufacturing and capital goods orders as not only a positive short-term indicator of economic momentum but also potentially a sign that the U.S. economy was finally moving away from an overreliance on consumer spending.

"They are harbingers of needed rebalancing," he said.

(Additional reporting by Ros Krasny in Boston, Ann Saphir in Los Angeles, and Joe Rauch in Atlanta; additional writing by Mark Felsenthal; Editing by Leslie Adler)

Rupert Murdoch's News Corp, which owns broadcaster Fox and publishes newspapers including the Wall Street Journal and the UK's News of the World, said operating net profit fell to 26 cents before adjusting for one-time charges from 29 cents.

Analysts had on average forecast profit of 27 cents, according to Thomson Reuters I/B/E/S.

It said the quarter compares with a year ago when it benefited from the record-breaking performance of Hollywood blockbuster 'Avatar'.

Revenue dropped 6 percent to $8.26 billion.

News Corp's filmed entertainment operating income fell by 50 percent to $248 million, compared with the quarter a year ago due to 3D movie Avatar.

Publishing operating profits also dropped significantly to $36 million due to a $125 million charge at its marketing service business and primarily due to advertising revenue declines at Australian and UK newspapers.

The story was better at its overall television business, which enjoyed a resurgence in advertising revenues and rising cable affiliate fees like other rivals at CBS Corp (CBS.N) and Time Warner Inc (TWX.N).

Operating income at its U.S. cable networks -- including FX, National Geographic and Fox Sports -- rose by 22 percent, while operating profit at its international networks -- including Star TV and Fox Deportes was up by 34 percent.

The Fox television business received a huge bump from its coverage of this year's football Super Bowl and broadcast retransmission fees, boosting its revenue by 23 percent.

News Corp's expected strong earnings have been overshadowed in recent months by speculation about the companies dealmaking and the controversy surrounding its phone hacking scandal at its UK weekly tabloid News of the World.

The New York-based company is in the process of trying to buy the 61 percent of BSkyB (BSY.L) it doesn't already own.

News Corp made a 700p a share offer last June and the board said it's looking for around 800p or around $14 billion.

Wall Street expects News Corp may have to raise its bid even higher than 800p, especially as the UK satellite company has posted much improved earnings results since News Corp first made its bid [nLDE7270PA].

News Corp is also in the process of assessing buyout offers for its struggling entertainment site Myspace, a one-time pioneer of social networking which has long fallen far behind Facebook. News Corp said Myspace continued to rack up increasing losses during the third quarter.

(Reporting by Yinka Adegoke, editing by Bernard Orr)