* European opening down 0.7 percent, on track to snap winning steak
* Spike in China's short-term rates underscores tightening fears
* Nikkei tumbles 2 percent, reversing rise as yen jumps against dollar
* Fed tapering expectations pushed to next year after payrolls disappoint
* U.S. 10-year Treasury yield wallows at lowest levels since July
LONDON, Oct 23 (Reuters) - Concerns over tighter Chinese monetary policy hit global shares still high on hopes of extended U.S. stimulus on Wednesday, when the dollar tentatively steadied at an eight-month low after its latest slide.
European shares saw their biggest falls in two weeks as markets opened when fears of tighter policy in China were amplified by reports that some of its big banks were tripling write-offs on bad loans.
Asian markets saw widespread weakness as a variety of factors ranging from a strengthening yen in Japan and fading rate cut hopes in Australia added to the negativity.
"What has happened this morning is that we have the Chinese rate surge on the policy tightening fears," said Alvin Tan, a strategist at Societe Generale in London.
"That has basically generated a broad correction in risk assets and in Europe that is continuing."
Short-term Chinese money rates underscored investors' concerns that regulators there are poised to tighten liquidity to quell growing inflationary pressures. 1/8ID:nL3N0ID0XN 3/4
The benchmark seven-day repo contract, which had been steadily sliding since Oct. 9, spiked in the morning session, a day after a policy adviser to the People's Bank of China (PBOC) told Reuters it was weighing tightening measures.
In Europe, A string of earning misses from some of the region's biggest corporate names including chip maker STMicroelectronics and brewer Heineken added to the pressure on shares.
Investors were also digesting the first firm details from the European Central Bank on it plans to check the health of euro zone banks over the next year.
The FTSEurofirst 300 was down as much as 0.7 percent as trading gathered pace, with Italian, Spanish and Portuguese markets leading the way with respective falls of 1.4, 1.2 and 1.3 percent.
ECB BANK CHECK
The ECB's new supervision role is the first leg of a three-pronged plan for a banking union in the euro zone and is designed to ensure there are no holes that could leave the bloc vulnerable.
Jan von Gerich, chief developed market strategist for Nordea, said that while if done properly it should help the euro zone, in the short term it could revive questions about its weaker members.
"The most interesting part will be what it says about Italy. Its banks haven't gone through the same kind of scrutiny as the ones in Spain or those in Greece, Ireland or Portugal... The smaller countries, too, whether Slovenia will need a bailout for example."
In the currency market, focus remained on the prospect of Federal Reserve keeping its stimulus programme running at full after soft jobs data on Tuesday stoked concerns the U.S. was losing momentum even before this month's budget tussle.
Nine of 15 U.S. primary dealers surveyed by Reuters on Tuesday now expect the Fed to begin tapering its $85 billion-a-month bond-buying programme in March.
The dollar had tumbled almost 1 percent against its Japanese counterpart to 97.22 yen by 0830 GMT and was near a two year low versus the euro at $1.3760.
In the near-term, the dollar could see further weakness against other major currencies such as the euro and sterling, said Sim Moh Siong, FX strategist for Bank of Singapore, adding that the euro may rise towards levels around $1.39.
"I think there's certainly a high possibility that dollar weakness might extend a bit further, but I'm not really sure that it changes the medium-term dollar picture," Sim said.
The Australian dollar was last down 0.6 percent against its U.S. counterpart in a whipsaw session that saw it jump about a quarter of a U.S. cent after a stronger than expected inflation reading dampened rate cut hopes.
The yield on benchmark 10-year Treasury notes fell to 2.492 percent, its lowest since late July, after closing U.S. trade at 2.512 percent. German Bunds tracked the move as they hit three-week highs in early trading.
On the commodities front, concerns about a near-term U.S. crude surplus helped push U.S. crude prices down about 0.8 percent to $97.53 a barrel. Brent crude gave up 0.6 percent to $109.29 a barrel, supported by a weaker dollar.
Copper slipped from near one-month highs as traders booked profits after the U.S. jobs report reinforced the metal's weak fundamental outlook, falling 0.8 percent to $7,272.75.
Gold fell 0.3 percent to $1,332.39 an ounce, having risen to a four-week high after the payrolls data.