Europe Suffers Worst Day

(Updates levels throughout after U.S. open)

* European stocks tumble, Italy down over 4% after virus spread

* 10-year Treasury yields rally to lowest since mid 2016

* MSCI ex-Japan extends losses, Japan closed for public holiday

* Gold prices surge to highest since 2013

* Dollar pushes higher, batters emerging markets

* E-mini futures for S&P500 fall more than 1% in Asia trading

* South Korea on alert after virus cases surge to 763

* China reports 2,592 die of virus

By Marc Jones

LONDON Feb 24 (Reuters) - European shares suffered their biggest slump since mid-2016 on Monday and oil plunged almost 5%, as a jump in coronavirus cases in Italy, South Korea, Japan and Iran sent investors scrambling to the security of gold and government bonds.

Wall Street dived around 3% after it opened as the ugly sell-off spread.

Europe had seen Milan's stock market plummet over 5.5% after a spike in cases of the virus left six dead in Italy and parts of the country's industrial north in virtual lockdown.

Frankfurt and Paris both fell more than 4% and London's FTSE dropped 3.8%, wiping at least $400 billion off the region's market value in a few short hours.

The flight to safety was just as resounding, gold surging 2.5% to a seven-year high of $1,680 an ounce.

Bonds rallied too. Ten-year U.S. Treasury yields dropped below 1.36% for the first time since July 2016. The 30-year Treasury touched a record low at just under 1.81% and German yields dropped to -0.48%, their lowest in more than four months.

"Everybody sees that this could be another leg down for the economy, and we were already in quite a fragile state to begin with," said Rabobank's head of macro strategy, Elwin de Groot. "It could be another step towards a recession in more countries."

Wall Street's initial fall swiped more than 800 points off the Dow, shoved the benchmark S&P 500 below its 50-day moving average -- a key technical level for chart watchers -- and took MSCI's world index negative for the year.

In Asia overnight, South Korea's KOSPI had slumped 3.9% after the government declared a high alert. The number of cases rose to 763 and deaths to seven.

Japanese markets were closed, but Australia's benchmark index slid 2.25% and New Zealand fell about 1.8%. . China's blue-chip CSI300 closed down 0.4%, taking MSCI's broadest index of Asia-Pacific shares outside Japan to its lowest since early February.

The virus has now killed 2,592 people in China, which has reported 77,150 cases, and spread to some 28 other countries and territories, with a death toll outside of China around two dozen, according to a Reuters tally. [nL8N2AB5TN

Iran, which announced its first infections last week, said it had confirmed 43 cases and eight deaths, with most cases in the holy city of Qom. Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan imposed travel and immigration restrictions on the Islamic Republic.

"The idea that the coronavirus has been fully contained has been firmly banished," Chris Beauchamp Chief Market Analyst at IG. "This means the economic forecasts of the impact, such as they are, will need to be revised, with a greater impact now to be expected.

SURGE TO SAFETY

As well as the early whack to Wall Street, CBOE's VIX volatility index, the so-called fear gauge, reached its highest since August.

U.S. fed fund futures signaled more rate cuts later this year and a near 20% chance of a cut next month.

FX markets reacted by pushing up the safe-haven Japanese yen to 111.34 yen per dollar. But against the rest of the world, the dollar was again showing its strength.

The euro was squeezed towards $1.08 and the Australian dollar, often traded as a proxy for China risk, fell to an 11-year low of $0.6585.

Korea's won was down 1% at 1,219.06 after falling to its weakest since August 2019. Emerging-market currencies from Mexico's peso and Turkey's lira to Poland's zloty and Russia's rouble were all in the red.

In commodity markets, Brent crude fell 3.5%, or $2.1, to $56.35 a barrel. U.S. crude dropped 3%, or $1.64, to $51.74 a barrel. Among the main industrial metals, copper fell 1.4% and zinc was down 2.5%.

"Oil prices will remain vulnerable here as energy traders were not pricing in the coronavirus becoming a pandemic," said Edward Moya, senior market analyst at OANDA.

"While some parts of China are seeing improving statistics... markets will remain on edge until we start seeing the situation improve in Iran, Italy, South Korea and Japan."

(Additional reporting by Swati Pandey in Sydney, editing by Larry King and Ed Osmond)