GLOBAL MARKETS-Gold sells off after recent rally

* Gold sells off after sharp gains

* Bond prices also sink; stocks see-saw; U.S. volume thin

* Japanese stocks end down after Moody's downgrade

* Markets position for Bernanke speech (Updates prices, details)

By Caroline Valetkevitch

NEW YORK, Aug 24 (Reuters) - Gold futures were headed on Wednesday for their biggest one-day loss since March 2008, while the dollar rose on bets a speech by Fed Chairman Ben Bernanke later this week will not reveal any major initiatives.

Government bonds, another safe play, also sold off sharply, while world and U.S. stocks flipped between positive and negative territory.

Heightened uncertainty surrounding Bernanke's speech to fellow central bankers on Friday by the head of the Federal Reserve kept stock gains in check, although gold-related exchange-traded funds and shares dropped.

Markets have been in turmoil for the past month, weighing another possible U.S. recession and the impact of the euro zone debt crisis on the global economy. Benchmark stock indexes are on track for their worst month since the fall of 2008, after the collapse of Lehman Brothers investment bank.

Investors have been hoping for additional action from the U.S. central bank to help.

"The speech is a real wild card for markets so people are being cautious," said Kathy Lien, head of research at GFT Forex in New York.

Wednesday's trading was not a typical move from one asset class to another.

Classic safe havens like gold and Treasuries sold off in heavy volume, but the cash raised was not immediately poured into stocks or other riskier assets like oil. Stocks rose, but on low volume. Oil, which was volatile all day before ending lower, also had tepid flows.

Investors instead focused on raising cash to be stored away until the uncertainty surrounding Bernanke's speech on Friday fades.

For gold investors, analysts said it's time to take money off the table after a safe-haven rally extended too far, too fast in recent weeks. Bullion had been up by as much as $400 per ounce since July.

U.S. gold futures for December delivery were down $98.30 to $1,763.10 an ounce. Trading was hectic with volume headed toward one of the busiest sessions of the year.

Spot gold also tumbled, and appeared headed for its biggest two-day decline in almost three years.

"You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.

Exchange-traded funds tracking gold stocks and gold-mining stocks fell after the drop in bullion futures. The SPDR Gold XTrust Index lost 3.4 percent, while the Market Vectors Gold Miners Index fell 3.4 percent.

Among gold-related shares, Barrick Gold dropped 4.2 percent to $48.58, Goldcorp Inc fell 5.3 percent to $48.58 and Kinross Gold lost 3.4 percent to $16.48.

DOLLAR UP

The dollar edged up, but traders said there was little conviction behind the gain. The dollar <.DXY> was last up 0.1 percent against a basket of currencies.

Speculation is widespread in financial markets that the Fed's Bernanke will use his speech at an annual conference of central bankers in Jackson Hole, Wyoming, to signal a new monetary offensive to support the faltering U.S. economy.

However, many analysts think he is most likely to outline gradualist measures, which would disappoint those looking for a big bang approach such as a third round of Treasury bond buying or "quantitative easing," dubbed QE3.

"I think some of the dollar buying is based on the idea that Bernanke won't be too aggressive just yet," GFT's Lien said.

BOND PRICE DROP

Bond losses accelerated in afternoon trading despite a decent response to a $35 billion auction in five-year Treasury notes, part of this week's $99 billion in coupon-bearing supply.

The benchmark 10-year Treasury note was last down 36/32 in price and yielding 2.28 percent, up from 2.16 percent late on Tuesday.

Stock investors tried to build on positive sentiment after weeks of selling. Both world and U.S. stocks rallied on Tuesday, although the U.S. S&P 500 is still down 13 percent since July 22, roughly the start of the recent sell-off.

Data showing better-than-expected U.S. durable goods orders was supportive for stocks, as was a U.S. Congressional Budget Office prediction of a project decline in the deficit as a result of the government's recent debt-reduction agreement.

World stocks as measured by MSCI <.MIWD00000PUS> were last up 0.3 percent.

On Wall Street, the Dow Jones industrial average <.DJI> was up 107.62 points, or 0.96 percent, at 11,284.38. The Standard & Poor's 500 Index <.SPX> rose 11.88 points, or 1.02 percent, at 1,174.23. The Nasdaq Composite Index <.IXIC> was up 16.95 points, or 0.69 percent, at 2,463.01.

The FTSEurofirst 300 index <.FTEU3> of top European shares gained for a third straight session to end 1.4 percent stronger, while Japanese shares <.N225> sold off following Moody's Investors Service's downgrade of the country's sovereign debt. For more see: [ID:nL4E7JO17A].

Tokyo's Nikkei average <.N225> closed down more than 1 percent. Overseas investors in particular reacted to the downgrade.

In the oil market, Brent oil prices rose after weekly data showed a surprise fall in crude stockpiles in the United States, but caution over the demand outlook put a cap on price gains.

Brent crude was up 66 cents at $109.97, while U.S. crude for October delivery settled at $85.16 a barrel. (Additional reporting by Jan Harvey in London and Frank Tang, Ashley Lau and Steven Johnson in New York; Editing by Dan Grebler)