* World Stocks head for worst week of year
* China Aug PMI shrinks at fastest pace in almost 6-1/2 yrs
* Dollar extends losses as safe-haven U.S. debt yields fall
* Gold, Treasuries up on safe-haven bid
* Oil on longest weekly losing streak in 29 years
By Marc Jones
LONDON, Aug 21 (Reuters) - World stock markets tumbled towards their worst week of the year on Friday and commodities got another kicking, as more alarming data from China sent investors scurrying to the safety of bonds and gold.
The data from China showed its giant manufacturing sector slowing at the fastest pace since the depths of the financial crisis in 2009, confirming worries about its health that have been preying on economist's minds for months.
Emerging market assets took another hammering and oil prices were on track for their longest losing streak since 1986, as fears of a China-led deceleration in entire global growth gripped sentiment.
The major developed economy markets were increasingly being dragged into the sell-off. Wall Street was expected to open firmly in red again later having already lost more than 2.5 percent this week.
Europe's bourses were also being beaten up. The pan-regional FTSEurofirst .FTEU3 was down more than 1.5 percent as traders shrugged off some reassuringly solid euro zone manufacturing and services data in a third straight day of selling.
"Markets are going to continue to be somewhat disappointed by the implications for Chinese growth ... and I don't have a great deal of comfort to offer there," said Michael Kurtz, Global Head of Equity Strategy at Nomura.
In the FX markets, the euro EUR= regained some of its overnight momentum having been pushed to a two-month high by those looking to get out of battered Asian currencies and China proxies such as the Aussie and Hong Kong dollars. FRX/
The latest rout had been triggered as the Caixin/Markit manufacturing index showed activity in China's factory sector shrinking at its fastest pace in almost 6 1/2 years in August as domestic and export demand dwindled.
That decline, coming on the heels of weaker-than-expected data in July, plus this month's turbulent changes in the yuan CNY= , and a brutal stock market plunge, heightened fears.
Shanghai stocks .SSEC dropped 4 percent to below the 200-day moving average for the first time since July 2014. That brought losses for the week to 11 percent.
It all left MSCI emerging markets index .MSCIEF at its weakest in four years and the 45-country "All World" index .MIWD00000PUS down more than 3.2 percent on the week and heading for its worst of 2015 so far.
China's volatile markets
Global assets in 2015
European bourses in 2015
Currencies vs dollar
World interest rates:
China's woes continued to roil commodities. Oil resumed its downward trend. U.S. crude CLc1 was at a more than 6-year low, on track for its eight straight weekly decline as it slipped 0.5 percent to $41. Brent LCOc1 nudged $46 a barrel. O/R
Oil's torrid run of weekly losses is its worst since 1986 when OPEC ramped up production and sent it as low as $10 a barrel.
Among currencies it was a similar story. The Australian dollar AUD=D4 , considered a liquid proxy for China demand, slid to $0.7285 at one point and was last trading at $0.7335, down 0.2 percent for the day.
The Malaysian ringgit MYR= hit a pre-peg 17-year low and South Korea's won KRW=KFTC fell again to take its losses to 1.8 percent against the dollar this week. EMRG/FRX
"The perfect storm that has enveloped EM local markets looks set to continue," analysts for Barclays (LONDON: BARC ) said in a note.
All the market ructions sent gold XAU= , seen as a good asset to hold in difficult times, to its highest level in more than a month.
Safe-haven U.S. Treasury yields US2YT=RR also slipped further. They were already feeling a downward pull after minutes from the Federal Reserve's July meeting this week offered little clue of a near-term rate hike.
"The U.S. markets have held up well of late, being viewed as somewhat of a safe haven," wrote Chris Weston, chief market strategist at IG in Melbourne. "This view seems to have deteriorated somewhat with the S&P 500 closing below its multi-month trading range - a fate the credit markets and the U.S. yield curve have been screaming for some time."
Lower Treasury yields and the stronger euro in turn weighed on the dollar. The currency traded at 122.68 yen JPY= , the lowest in more than five weeks, after sinking from an overnight high of 124.16. It was at £1.1278 to the euro. EUR
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