* Stock markets fall back across the board
* German bond yields sink deeper into negative territory
* Pound hurtles below $1.30 to weakest since 1985
* Oil prices under pressure again after shedding 5 pct
* China lets yuan fall to low last seen in late 2010
By Patrick Graham
LONDON, July 6 (Reuters) - Fear of instability in the European Union and of decades of global stagnation sent stock markets sharply lower on Wednesday as Britain's pound sank below $1.30 for the first time in more than three decades.
After a steadier few days as investors digest the shock of Britain's decision to leave the European Union, the implications of another round of financial losses, interest rate cuts and central bank money-printing to prop up growth have begun to set in.
In Asia, Japanese and Korean stocks fell by almost 2 percent. Europe's major markets lost around 1 percent and the European banking index - a major focus of concern this year - fell by 1.9 percent.
Sovereign bond yields were lower across the board. Government debt in Germany returns less than nothing for the next 15 years. DE10YT=TWEB
"We've seen strong selling interest across the board this week," said Michael Hewson, Chief Market Analyst at CMC Markets in London.
"While some have speculated that some 'Leave' voters may have undergone some form of buyer's remorse, it would seem that the same could also be said of the investors who took part in last week's stock market rebound."
The suspension of a handful of property funds, a reflection of concerns that Britain's real estate market could sink in the face of a Brexit, has been the trigger for a new wave of selling of the pound and UK assets.
A huge, 7 percent of national output, current account gap, makes Britain and the pound highly vulnerable to any halt in the investment that has flooded into London property markets from Russian and Chinese investors in recent years.
Money markets are also now pricing in a good chance of a cut in one or more of the Bank of England's official interest rates to zero within the next three months. Sterling fell as low as $1.2798 in Asian trading. GBP=
"The next catalyst for a sterling sell-off could come from the Bank of England next week," wrote BNP Paribas (PA:BNPP) strategists in a research note.
"The market is still likely under-pricing BoE easing, with our economists forecasting a 25 basis point rate cut next week followed by a 25 basis point cut at the August meeting and 100 billion pounds' worth of quantitative easing, including corporate bonds, to be announced by the November meeting."
YUAN DOWN
The bond market reaction is the clearest signal of how markets are interpreting the economic hit from Brexit - yet another shock to a vulnerable global economy, another wave of central bank easing and possibly the starting gun for a new round of currency, tax and even trade wars.
China, which has been steadily weakening the yuan while eyes are fixed on Europe, allowed the value of its currency against the dollar to fall to another 5-1/2 year low overnight. That helped Shanghai's stock market remain in positive territory.
In Europe the big concern is how banks will cope with yet lower interest rates and writedowns in the value of assets they hold.
Italy's bank sector index .FTIT8300 has fallen 30 percent since Britain voted on June 23 to quit the European Union, bringing its losses so far this year to 57 percent. The euro zone banking stocks index .SX7E has dropped 22 percent and 37 percent respectively.
"Italy faces a severe crisis that is exponential. This is not gradual and not linear," said Francesco Galietti, head of the Policy Sonar risk consultancy and a former finance ministry official. "The immediate trigger is the banking crisis."
Concerns that even central banks may not be able to soften this latest blow to global growth hit commodities hard. Having shed near 5 percent on Tuesday, Brent crude oil LCOc1 fell further to $47.84, with U.S. crude at $46.43 a barrel.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Brexit currency reactions
http://tmsnrt.rs/29gU3MP Asia rates interactive
http://tmsnrt.rs/1U5hc2W Japan bond yields
http://tmsnrt.rs/1RieEON
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