* U.S. Treasury yields hit 4-year low
* Government borrowing costs lower across Europe after ECB
report
* MSCI Asia-Pacific index gains 0.5 pct, Nikkei closes up
0.7 pct
* European markets inch higher for fourth day
By Patrick Graham
LONDON, July 1 (Reuters) - The prospect of further cuts in
interest rates and bond-buying to support a fractured global
economy kept stock markets on the up in Europe and Asia on
Friday, and drove U.S. and European government bond yields to
their lowest in years.
Signs that the world's big central banks will go even easier
on monetary conditions, extending an era of ultra-low interest
rates, have been at the heart of a recovery for stock markets
from the chaos caused by Britain's vote to leave the European
Union last week.
But the big moves on Friday were in the bond yields that
represent the cost of borrowing for governments and a benchmark
for how much banks, companies and individuals pay for credit.
The 10-year U.S. Treasury yield US10YT=RR fell to its
lowest in four years, taking it within striking distance of
record lows. French and Dutch equivalents hit all-time lows and
those for others among Europe's struggling southern states were
around their lowest in a year.
The fall in peripheral yields came largely thanks to a
Bloomberg report that the European Central Bank was considering
looser rules for bond-buying that might include moving away from
a link between purchases and the size of a country's economy.
The report also helped European shares edge higher for a fourth
day.
"The speculation that the ECB might adjust its QE programme
is something that is being received excitedly in bond markets,"
said Christian Lenk, a strategist at DZ Bank.
"It would mean that issuers who have large outstanding debt
like Italy would stand to benefit."
Sources close to the ECB told Reuters that the ECB was not
currently considering buying government debt out of proportion
to euro zone countries' shareholding in the bank and that the
hurdle for abandoning this capital key was high.
Earlier, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS cranked out its third gain in four
days, up around half a percent. Japan's Nikkei .N225 closed
0.7 percent higher.
"If these reports are confirmed, this removes the risk of a
post-referendum spike in (euro zone) peripheral bond spreads -
and, hence, the most immediate way in which the UK referendum
result could lead to near-term financial stress," Deutsche Bank (DE:DBKGn)
equity analysts said in a morning note.
Bank of England Governor Mark Carney's signal on Thursday
that more moves to support growth are likely over the summer has
also helped crystallise expectations for broadly easier policy.
In the United States, that should take the form of a retreat
from any prospect of higher rates this year, and possibly next.
Europe and Japan are expected to have to do more but their hands
are tied by the extent of moves already made.
There is also the growing question of whether any of this is
likely to work after several years in which it has failed to
reboot the world's biggest economies. The Brexit vote is just
the latest blow to any recovery.
Shares in China, another big source of concern, wobbled
after official surveys on Friday showed growth in the
manufacturing sector stalled, although the main indices are up
2.5-3.0 percent this week. .CSI300 .SSEC
"The week ahead will no doubt see bouts of Brexit-related
nervousness but it may continue to settle down in the absence of
any new developments in Europe," said Shane Oliver, head of
investment strategy at AMP Capital in Sydney.
In currency markets, sterling and the euro remain under
pressure as investors head for the traditional security of the
yen, the dollar and the Swiss franc. Both the pound and the euro
were down just 0.1 percent on Friday. EUR= GBP=
(Editing by Jon Boyle)