GLOBAL MARKETS-Stocks drop, dlr gains ahead of Bernanke

* World stocks fall ahead of Bernanke

* Talk of German short-selling ban

* Gold trades higher, bonds up (Updates prices, adds details)

By Caroline Valetkevitch

NEW YORK, Aug 25 (Reuters) - World stocks dropped and the U.S. dollar rose against the yen on Thursday as investors lowered their expectations that the Federal Reserve chief would signal a dramatic rescue for the economy this week.

The stocks declines pushed safe-haven gold higher, along with government bonds.

Fed Chairman Ben Bernanke is due to address central bankers at an annual symposium in Jackson Hole, Wyoming, on Friday. His speech last year laid the groundwork for the Fed's $600 billion bond-buying program to revive the economy under the rubric "QE2" for the Fed's second round of stimulus, or quantitative easing.

While investors have speculated Bernanke could signal a new monetary offensive in his talk, many analysts say he could well disappoint those looking for major measures, such as a QE3.

"Over the last couple of days, we have gone from pure excitement about QE3 to being far more muted. I suspect there has been some positioning for a slightly more mundane speech coming from Bernanke," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.

Worries about the faltering U.S. economic recovery as well as the euro zone debt crisis have plagued investors for weeks.

Under quantitative easing, the Fed effectively prints money to buy bonds, with the aim of depressing U.S. Treasury yields even further and encouraging investors to seek higher returns elsewhere. An increase of money supply would also erode the value of the dollar relative to other currencies.

The dollar rose to a two-week high against the yen, up 1 percent at 77.67 yen .

The MSCI world equity index <.MIWD00000PUS> fell 1 percent. The benchmark index, however, is on track to post its first weekly gain in five weeks, having hit an 11-month low earlier this month.

Talk of a broad short-selling ban in Germany caused a late-afternoon slump in European indexes, with the DAX <.GDAXI> leading the way and slumping to a low of 5,451 points before paring losses and ending down 1.7 percent.

Comments from the German finance ministry and a regulator appeared to quash the initial fears, although it was not enough to restore the market's earlier gains and the broader FTSEurofirst 300 <.FTEU3> provisionally ended the day down 1.3 percent.

On Wall Street, the Dow Jones industrial average <.DJI> was down 117.38 points, or 1.04 percent, at 11,203.33. The Standard & Poor's 500 Index <.SPX> was down 12.15 points, or 1.03 percent, at 1,165.45. The Nasdaq Composite Index <.IXIC> was down 32.84 points, or 1.33 percent, at 2,434.85.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended down 1.3 percent.

Among U.S. stocks, Apple fell 1 percent to $372.41 after the resignation of its founder and chief executive, Steve Jobs. Bank shares rose, however, after Warren Buffett's Berkshire Hathaway said it would invest $5 billion in Bank of America . Shares of the Dow component jumped 10.4 percent to $7.72 but are still down for the month. For details, see [ID:nN1E77O0HA] [ID:nN1E77O0FV]

GOLD REVERSES LOSS, BONDS UP

Gold reversed early declines to trade higher. Spot gold registered its biggest percentage one-day drop on Wednesday since December 2008.

Gold , which has jumped about $400 since July as worries about a global recession sent investors scrambling for the safe-haven asset, was last up 0.5 percent at $1,759.99 an ounce.

U.S. Treasury prices also advanced after data showing higher-than-expected new claims for U.S. jobless benefits. Benchmark 10-year Treasury notes were trading 19/32 higher in price to yield 2.22 percent, down 7 basis points from late on Wednesday. (Reporting by Caroline Valetkevitch in New York, with additional reporting by Wanfeng Zhou and Frank Tang in New York; Editing by Kenneth Barry and Dan Grebler)