* Flight to safety gathers pace
* European political, economic turmoil casts long shadow
* U.S. jobs report to offer health check on U.S. economy
By Richard Hubbard
LONDON, May 25 (Reuters) - The late spring warmth spreading across Europe and the United States is unlikely to soothe a growing anxiety in financial markets that the global outlook is anything but balmy.
An escalating euro zone crisis and weak data from China and Europe have turned investment flows ever more firmly toward safe-haven assets, mainly in the U.S., and away from anything with a hint of risk - a trend that is firmly entrenched.
In the coming week investors find out if the list of current concerns extends to the health of the giant U.S. economy with May non-farm payrolls and consumer confidence reports due, along with a more detailed reading on the first quarter's economic performance.
But the focus of market attention will mainly be on risk in Europe, centered on elections on June 17 that could leave Greece governed by parties opposed to the international bailout that is keeping the country afloat.
That could force Greece to leave the euro zone, causing collateral damage of a scale that is hard to assess to the world's fragile economic and financial system.
To the west, a perfect storm of soured bank loans and regional governments flirting with bankruptcy is gathering over Spain, with Bankia seeking a 15 billion euro bailout and Catalonia also going cap in hand to Madrid.
"I don't think Europe will drag down the rest of the global economy if nothing too bad happens. The problem is there's a possibility that something too bad will happen," said Peter Westaway, chief economist at Vanguard Asset Management.
That uncertainty is spreading across the world is highlighted in data from fund tracker EPFR Global showing that emerging equity funds saw outflows of over $1.5 billion in the week to May 23 after losing $2.25 billion the previous week.
Emerging market bond funds lost almost $500 million in the same period, their first decline in 19 weeks.
Also in the past week, the European Central Bank said in the past week that direct and portfolio investment recorded net outflows of 54 billion euros in March, the month after the second of its two massive liquidity injections into the banking system.
At the other end of the risk scale, Germany was able to sell a two-year bond in the past week that offered investors no regular return and found buyers lining up for the deal.
The yield on 10-year U.S. Treasury note dropped to near 1.7 percent, close to its lowest level on record, while the dollar indexed against a range of major currencies touched a 20-month high.
After a volatile week on global equity markets, MSCI's world share index gave up virtually all its gains for this year and has fallen 12.5 percent since its peak at the end of March.
The speculation about Greece exiting the euro, contagion in Italy and Spain, and the future of the whole euro zone project still isn't fully reflected in market prices, according to some analysts.
"We think that the ramifications of a Greek exit are more serious than the market anticipates," analysts at Morgan Stanley said in a note to clients.
"While a euro zone break-up is not our base case scenario, we raise our subjective probability to 35 percent from 25 percent, and reduce the time scale of this move to 12-18 months from five years."
Analysts at RBS believe that even after the shake-out in financial markets sparked by the political turmoil in Greece, the drive into safe-haven assets has further to run.
"You've had a little smokescreen of the ECB liquidity injection, but apart from this it's been same the trade for two years - don't own any risky assets," said Andrew Roberts, head of European Rates Research at RBS Markets.
"The only difference now is that Asia is coming to the party partly because its main export market is Europe."
One thing that could change in the coming week is talk of a more proactive stance from major central banks, especially if evidence grows that Europe's crisis is further clouding the U.S. or Asian economic outlook.
Vanguard's Westaway said that in the current environment it is likely that firms and households everywhere are putting off spending decisions.
"They're taking into account the possibility that something really awful is going to happen, so the optimum thing to do is not to do anything until the situation gets resolved."
The first key signal could be the U.S Conference Board Index of Consumer Confidence for May on Tuesday, which some expect to fall because of April's weak U.S. jobs market.
The big data release comes on Friday with the U.S. employment report for May, expected to show a slight recovery with new jobs rising to 150,000 from 115,000 in April.
Of significance to expectations over whether the ECB will ease its interest rates is likely to be the first estimate of German inflation in May on Tuesday, euro zone inflation data on Thursday and a survey on bank lending activity on Wednesday.