Asian shares fall, gold claims new record as banking fears weigh

• Nikkei falls 1% as banking shares slide
• Gold claims new record but gains faded a little
• Oil hits new five-month lows as Trump, Putin summit looms
• Treasuries up for 3rd week as investors bet more policy easing

SYDNEY, Oct 17 (Reuters) - Asian shares tracked Wall Street lower, bonds extended gains and gold hit a fresh record on Friday, with signs of credit stress at U.S. regional banks putting investors on edge.

Overnight, Zions ZION.O sank 13% after disclosing it would take a $50 million loss in the third quarter on two loans from its California division. Western Alliance's WAL.N stock slumped 11% after it initiated a lawsuit alleging fraud by Cantor Group V, LLC.

"While the recent issues of the two lenders seems well contained, where there is smoke there is often fire and the remedy of the 2023 crisis has created a tinderbox for another banking flare-up," said Tony Sycamore, analyst at IG.

The two developments pummelled U.S. banking stocks and weighed on the U.S. dollar to the benefit of the yen and the Swiss franc. Two-year Treasury yields US20YT=RR hit a fresh three-year trough of 3.4040% on Friday as investors priced in at least two more quarter-point rate cuts from the Federal Reserve this year.

The flight to safety saw gold XAU= hit a record of $4,378 per ounce, although it ran into some profit-taking and was last flat. Even so, the bullion is set for a weekly gain of 7.6%, its biggest since early 2020. Silver XAG= also hit a new peak.

Both S&P 500 futures ESc1 and Nasdaq futures NQc1 lost 0.3% ahead of more earnings from U.S. regional banks later in the day. European stock futures STXEc1 fell 0.7%, while FTSE futures FFIc1 dropped 0.9%.

Sentiment in equities has also taken a hit due to rising trade tensions between China and the United States. China on Thursday accused the U.S. of stoking panic over its rare earth controls, rejecting a White House call to roll back the curbs.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.9%, taking the week to negative territory. Japan's Nikkei .N225 lost 1% as its banking index tumbled.

Taiwan's shares .TWII fell 0.9% even after chipmaker TSMC 2330.TW posted a record quarterly profit and issued a rosy forecast for spending on artificial intelligence.

Both Chinese blue chips .CSI300 and Hong Kong's Hang Seng .HSI tumbled 1.4%.

The credit worries and rate cut bets undermined the U.S. dollar, which was on track for a weekly loss of 0.6% against its major peers to 98.24, the lowest in ten days. FRX/

The yen JPY= and the Swiss franc CHF= gained most, up 0.7% and 0.9% for the week.

Bank of Japan Governor Kazuo Ueda said that the central bank would scrutinise various data in deciding whether or not to raise interest rates this month.

Liberal Democratic Party (LDP) leader Sanae Takaichi is still wooing allies to help clinch a prime ministerial vote expected next week.

Treasuries are set for a third straight week of gains. Two-year Treasury yields US2YT=RR slipped 2 basis points on Friday to 3.4040%, a fresh three-year low, and were headed for a third straight week of declines.

Ten-year Treasury yields US10YT=RR also eased 2 bps to 3.959% and were down 10 bps for the week.

Oil prices extended losses, after falling 1% overnight as U.S. President Donald Trump said he and Russian President Vladimir Putin agreed to meet in Hungary soon to discuss ending the war in Ukraine.

U.S. crude CLc1 fell 0.7% to $57.04 a barrel, while Brent LCOc1 was also off 0.7% to $60.63.