GLOBAL MARKETS-Investors stampede to safe govt debt, stocks drop

* U.S. Treasury, Bund yields at record lows

* Two-year German yields go negative

* Euro hits 23-mth low vs dollar

* Oil falls below $100 a barrel

* Stocks fall after sharp May sell-off

By  Carolyn Cohn

LONDON, June 1 (Reuters) - U.S. Treasury yields hit their lowest in hundreds of years and world stocks dropped towards 2012 lows on Friday, as investors scrambled for lifelines on worries about Spain's parlous finances and China's growth outlook.

U.S. stock  futures  pointed to a sharply lower open, with futures for the S&P 500, Dow Jones and Nasdaq 100 down between 0.8 and 1.2 percent.

With euro-zone debt signals flashing red again and Chinese demand seen slowing, record after record has tumbled across asset classes as investors seek security for their cash.

The German two-year bond yield fell below zero for the first time, meaning investors are paying for the right to hold that debt. Other "safe havens" Denmark and Switzerland said they were prepared to set negative interest rates to prevent their  currencies  spiralling.

U.S. 10-year Treasury yields fell to 1.524 percent <US10YT=RR, hitting their lowest on record - going back more than two centuries, according to Reuters data - for a second day.

Oil fell below the psychologically key level of $100 a barrel, striking an eight-month low.

"We've had constant worries about  Greece , Spain, the euro, poor data from the U.S., and overnight the Chinese data was not positive," said Tony Machacek, an oil futures broker at Jefferies Bache.

The next focus is U.S. employment data at 1230 GMT, forecast to show a 150,000 rise in non-farm payrolls in May. London-based investors were also adjusting positions ahead of market holidays on Monday and Tuesday.

The euro hit its lowest against the dollar in nearly two years at $1.2316 while 10- and 30-year German Bund yields hit all-time lows. The dollar index rose to a 21-month high.

Madrid's need to recapitalise its troubled banks and shore up its heavily indebted regions is the latest focus for turbulent markets, though IMF Managing Director Christine Lagarde denied late on Thursday that the Fund was preparing financial assistance for Spain.

Spaniards alarmed by the dire state of their banks are squirrelling money abroad at the fastest rate since records began, figures showed on Thursday.

MANUFACTURING GLOOM

The gloomy economic news was not confined to Europe.

Weighing on the global demand outlook, China's official purchasing managers' index fell to 50.4 in May from April's 13-month high of 53.3.

Euro zone purchasing managers' surveys gave no comfort, with final May manufacturing PMI a fraction above flash estimates at a flimsy 45.1, far below the 50 threshold which denotes expansion.

In Spain, where investors are watching an unfolding banking crisis, the index fell to 42 in May, the lowest level since May 2009, adding to evidence that its recession is likely to be deep.

Spanish bond yields have surged this week to near their highest level since the launch of the euro, raising questions about the country's ability to fund itself over the longer term.

In stark contrast, UK government bond yields hit record lows as investors dashed to safe-haven debt, though Britain's manufacturing PMI data fell to a three-year low in May.

"There is nothing to resist these moves," a bond trader said. "A policy response might stop it but there is no sign of that."

The MSCI world equity index fell 0.7 percent towards the year's lows. World stocks fell more than 9 percent in May, their biggest monthly decline since September 2011.

European stocks fell 1.3 percent to their lowest levels this year.

In the hunt for safety, the yen hit an 11-1/2 year high against the euro. Japanese Finance Minister Jun Azumi said  Japan  would act if excessive yen strength continued.