* U.S. lays groundwork for possible action against Syrian government
* Wall St drops at open as Syria tension mounts
* Yen broadly firmer; Turkish lira, Indian rupee hit record lows
* Brent oil nears 6-month high, over $112 a barrel
By Angela Moon
NEW YORK, Aug 27 (Reuters) - The possibility of Western military action against the Syrian government hit shares worldwide on Tuesday, while boosting demand for safe-haven assets like yen and gold.
Wall Street opened lower, with the S&P 500 falling 0.8 percent, and a rise in U.S. government debt prices suggested that the flight to safety had gathered momentum. The benchmark 10-year U.S. Treasury note was up 7/32, the yield at 2.7616 percent.
In the currency market, the safe-haven yen and Swiss franc gained and riskier currencies like the Australian and New Zealand dollars fell as geopolitical tensions rose.
The Swiss franc and the yen usually climb in times of financial market stress and geopolitical uncertainty, while growth-linked higher-yielding currencies are sold off.
“Coming within the current nervous state of the markets, any flare-up or intensification of Middle Eastern tensions will surely take a further toll on risk sentiment,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
Spot gold rose to its highest since early June at around $1,420 an ounce. Gold has rallied more than $200 since late June, when prices hit three-year lows.
The Dow Jones industrial average was down 88.28 points, or 0.59 percent, at 14,858.18. The Standard & Poor’s 500 Index was down 14.26 points, or 0.86 percent, at 1,642.52. The Nasdaq Composite Index was down 36.70 points, or 1.00 percent, at 3,620.87.
Western powers told the Syrian opposition to expect a strike against President Bashar al-Assad’s forces within days, according to sources who attended a meeting between envoys and the Syrian National Coalition in Istanbul.
“The opposition was told in clear terms that action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days, and that they should still prepare for peace talks at Geneva,” one of the sources who was at the meeting on Monday told Reuters.
On Monday, U.S. Secretary of State John Kerry, in the most forceful reaction yet to the Aug. 21 gas attack outside Damascus, set the stage for possible action when he said President Barack Obama “believes there must be accountability for those who would use the world’s most heinous weapons against the world’s most vulnerable people”.
Emerging market currencies such as the Turkish lira and the Indian rupee bore the brunt of the flight as doubts over the Syrian situation added to pressure from investors’ positioning for an end to the supply of cheap dollars from the U.S. Federal Reserve’s monetary stimulus.
The Indian rupee lost as much as 2.5 percent to reach a record low of 65.93 per dollar, while Turkey’s lira weakened to 2.03 to the dollar, also a record low. Turkey’s share index also slid.
Brent crude oil for October climbed above $113 a barrel, nearly a six month high, while U.S. crude was up $2.86 to $108.78 a barrel.
Russia’s rouble, which normally benefits from stronger oil prices, hit a four-year low against the dollar-euro basket on concern over the situation in Syria.
As Syria’s key ally and arms supplier, Russia has urged Washington not to use military force against President Bashar al-Assad’s government. Traders said its response to any U.S. move against Syria would be key to whether the current shift into safer assets turned into a major flood.
In Europe, the FTSEurofirst 300 index of top European shares was down 1.5 percent at 1,205.09 after falling to as low as 1,206.82, a level not seen since late July.
Asian markets fell 1.2 percent, while Tokyo’s Nikkei ended 0.7 percent lower. That left the MSCI all-country world equity index down nearly 1.0 percent for a second day of falls, though it remains off its lows for the month.
More evidence that the recovery in Europe’s largest economy, Germany, was gathering momentum in the latest monthly survey by the influential Ifo think-tank had little impact on market sentiment.
Germany’s main DAX index was down 1.6 percent after the surprisingly strong data, with key French and Italian indexes both around 1.5 percent lower.
Italian shares were experiencing their second day of heavy selling after falling about 0.8 percent on Monday on concern over the stability of the ruling coalition, with Silvio Berlusconi’s center-right party threatening to bring down the government.