* Yuan sees biggest drop in almost three years after PBOCmoves
* Contrasts with world stocks at 6-year high; Wall St opensat peak
* Gold holds recent gains, major currencies rangebound
By Marc Jones
LONDON, Feb 25 (Reuters) - The repatriation of investors'cash into developed markets was underscored on Tuesday as WallStreet opened at an all-time high after China's yuan sufferedits worst day in over three years.
Wall Street started steadily after Monday'srecord high as confidence in the United States and Europe helpedcool markets after the yuan's plunge and a sharp drop in Beijingand a number of other emerging market bourses.
Uncertainty over China is stoking worries about afaster-than-projected slowdown in its massive economy and isdovetailing with political worries in other big emerging marketslike Ukraine, Thailand, Nigeria and Turkey.
The U.S. Federal Reserve has also started to scale back itshuge stimulus.
It's a potent mix that has seen a hefty $38 billion pulledout of emerging markets over the last 17 weeks and $44.2 billionstuffed into developed market equity funds since the start ofthe year.
The moves have been reinforced by Wall Street's recent runand Ramin Nakisa, a global macro strategist at UBS (Xetra: UB0BL6 - news) , said thecontrast with sliding emerging markets underscored their limitedappeal in the current difficult environment.
"We think there will be further flows into the U.S. as theFed cuts back on its stimulus," he said. "If you could earn3-3.5 percent on U.S. Treasuries for example would you riskmoney in volatile emerging market debt for a small premium."
The yuan has entered a dramatic weakening cyclein recent weeks, guided by a series of moves by the central bankaimed at instilling caution into those who for years have beenbetting on its rise versus other major currencies.
Tuesday saw a significant acceleration in the move. Theyuan's sharpest drop since November 2010 extended its fall inthe past week to just over 1 percent, amid talk the People'sBank of China (PBOC) had been discreetly intervening in the spotmarket.
China allows the yuan to move 1 percent above or below amidpoint set daily but experts believe the recent depreciationis intended to set the stage for a widening of that band to 2percent or more this year to make it more free moving.
"A lot of people were assuming the yuan would continue tostrengthen... so what has happened over the last week has left alot of people blindsided," said UBS's Nakisa. "We expect to seemore volatility in emerging markets in the rest of the year."
CRUISING AT ALTITUDE
In Europe, the urge to take profits after seven straightsessions of gains was strong and the pan-regional FTSEurofirst300 sagged 0.4 percent, led by a 1 percent drop fromLondon's FTSE due to its prevalence of China-influencedmining firms.
The euro and benchmark German government bonds kept to tight recent ranges and there was littleimpact from new European Commission forecasts which slightlyincreased its growth estimate for the euro zone to 1.2 percentin 2014, with a further 1.8 percent expansion next year.
Inflation was seen at 1 percent this year and 1.3 percent in2015, still well short of the European Central Bank's target ofjust below 2 percent. The ECB meets early next month and will bearmed with its own in-house forecasts.
Goldman Sachs (NYSE: GS-PB - news) pushed back on Tuesday its prediction of arate cut until April, although it didn't rule out a move by theECB to keep money market liquidity topped up by ending itsweekly 'sterilisation' of past government bond purchases.
"It will be a big step for the ECB but a small step formankind," said Neil Williams, chief economist at fund managerHermes.
WALL STREET HIGH
Away from China, Japan's Nikkei bolted ahead by 1.4percent to breach the 15,000 barrier, which in turn gave thedollar a slight lift on the yen, although it later sagged.
It had followed in the footsteps of Wall Street, where thebenchmark S&P 500 hit an intra-day record on Monday as theNasdaq punched to peaks last seen almost 14 years ago.
Another data deluge is due, including confidence readings,housing market surveys and retail sales figures, whilestocks are likely to remain on alert after Monday's fresh flurryof merger and acquisition activity.
U.S. Treasuries prices, which provide the benchmark forglobal borrowing costs, were steady after a dip overnight, withyields on the benchmark 10-year note holding justbelow 2.74 percent in early U.S. trade.
The swinging risk sentiment continued to buffet emergingmarkets. The latest twist in a government corruption scandal inTurkey saw the lira hit two-week lows versus the dollar andstocks fell 3 percent.
Ukraine fared better, with its sovereign dollar bondskeeping most of Monday's stellar gains as hopes grew it wouldreceive Western aid to prevent a debt default after the oustingof president Viktor Yanukovich.
Gold, which has benefited from recent global uncertainty, was also firm at around $1,333 an ounce aftertouching a four-month high. It faces stiff resistance atOctober's peak of $1,361.60.
Copper fell for a second day on concern about the impact ofslower growth in China while oil prices faded just a little toleave Brent crude at $110.30 a barrel and U.S. oil at$101.24 a barrel.
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