GLOBAL MARKETS-Dollar touches 17-month low vs yen as stocks slump

(Updates with close of U.S (Other OTC: UBGXF - news) . markets, oil settlement prices)

* Dollar hits lowest level vs yen since Oct (HKSE: 3366-OL.HK - news) . 2014

* European shares led lower by German factory orders decline

* Allergan (NYSE: AGN - news) tumbles on Wall St with deal in jeopardy

By Chuck Mikolajczak

NEW YORK, April 5 (Reuters) - The dollar fell on Tuesday to touch its weakest level against the yen since October 2014 and stock markets worldwide slumped as economic data out of Europe and the United States prompted a retreat from riskier assets.

The Japanese currency, often sought in times of market turmoil or economic uncertainty, strengthened. Bank of Japan Governor Haruhiko Kuroda, speaking to parliament on Tuesday, stressed his readiness to expand monetary policy, such as pushing interest rates further into negative territory.

Wall Street followed declines across Europe and Asia. The MSCI All-World Index dropped 1.4 percent, on target for its worst day since early February.

In New York, shares of Dublin-based Allergan were hammered after the U.S. Treasury Department on Monday unveiled rules designed to curb corporate tax inversion mergers that could possibly stymie the company's tie-up with New York-based Pfizer Inc (NYSE: PFE - news) . A source told Reuters that Pfizer was leaning toward abandoning, not altering, the deal.

Allergan shares slumped nearly 15 percent, their biggest percentage drop in nearly 12 years, and were the worst performer on the S&P 500. Pfizer shares rose 2.1 percent.

The U.S. trade deficit widened more than expected in February in the latest indication that economic growth weakened further in the first quarter, although other data suggested the economic growth picture could improve in the months ahead.

"The mix of global growth being perhaps a bit slower and a more gradual path for the U.S. fed funds rate... are likely positive for the yen," said Brian Daingerfield, currency strategist for RBS Securities in Stamford, Connecticut.

The Dow Jones industrial average fell 133.68 points, or 0.75 percent, to 17,603.32, the S&P 500 lost 20.96 points, or 1.01 percent, to 2,045.17 and the Nasdaq Composite dropped 47.86 points, or 0.98 percent, to 4,843.93.

In Europe, the FTSEurofirst 300 share index dropped 1.9 percent. Germany's DAX index slid 2.6 percent after data showed industrial orders in Germany, Europe's largest economy, unexpectedly fell 2.1 percent in February.

Further muddying the waters for investors, two senior officials of the U.S. Federal Reserve said the market's views of when the central bank would raise interest rates may be too pessimistic.

Fed Chair Janet Yellen said just last week the U.S. central bank would proceed cautiously in raising rates. Those remarks were viewed as dovish and sent U.S. stocks to their highest levels of the year so far.

The dollar fell as low as 109.94 against the yen and was last down 0.87 percent at 110.34 yen.

Oil steadied after Kuwait said an output freeze by major oil producers would proceed without Iran. Brent crude gained 18 cents to settle at $37.87 a barrel, while U.S. crude settled up 19 cents at $35.89 a barrel.

Yields on low-risk government bonds fell. German 10-year yields, the benchmark for euro zone borrowing costs, fell as far as 0.08 percent, the lowest level in almost a year.

Benchmark U.S. 10-year notes were last up 16/32 in price to yield 1.7235 percent, after hitting a session low of 1.717 percent.

Gold (Other OTC: GDCWF - news) , another perceived safe haven and a top-performing asset in the first three months of 2016, rose 1.2 percent to $1,229.61 an ounce.

(Additional reporting by Sam Forgione; Editing by Leslie Adler and Dan Grebler)