* MSCI Asia ex-Japan retreats from fresh 17-1/2-month high
* Nikkei in third daily drop as yen firms despite BOJ steps
* Focus turns to earnings season
* European shares likely to rise
By Chikako Mogi
TOKYO, Jan 23 (Reuters) - Asian shares retreated from multi-month highs on Wednesday amid caution as the earnings season gathers pace, with Tokyo stocks falling to three-week closing lows in response to a firm yen.
"Asian markets have been climbing steadily and it's natural for investors to want to book profits as the region's earnings season begins in full force later this month," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
"The uptrend remains intact given improving fundamentals globally, so selling like this is a healthy correction that may lead to putting a solid floor to prices," he said.
The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent after earlier reaching a 17-1/2-month high. The index has risen nearly 30 percent since a low touched in June, 2012.
The yen held firm against the dollar and the euro as monetary easing announced on Tuesday by the Bank of Japan failed to provide an immediate stimulus as some had hoped, though many analysts acknowledged the BOJ's resolve to tackle Japan's stubborn deflation and economic stagnation.
The stronger yen hurt Japanese exporters, dragging the benchmark Nikkei average down 2.1 percent to a three-week closing low. The yen has weakened by around 12 percent since mid-November against the dollar, and boosted the Nikkei by more than 20 percent as a weaker yen improved exporters' earnings outlook.
The BOJ on Tuesday doubled its inflation target to 2 percent and adopted an open-ended commitment to buy assets starting 2014, sparking an unwinding of yen short positions from speculators looking for more immediate easing step.
The dollar fell 0.6 percent to 88.20 yen while the euro slid 0.7 percent to 117.45 yen. The dollar hit a 2-1/2-year high of 90.25 yen on Monday.
Many still believe the yen will resume its recent downtrend, seeing the latest rebound in the Japanese currency as a correction to its rapid and sharp decline.
With the BOJ joining the continued push by global central banks to support growth, Morgan Stanley said in a research note that policy easing by central banks was positive for emerging markets, with more bond portfolio inflows increasingly towards local markets.
"Our key themes for 2013 are rebalancing and reflation, with both prevalent so far this year. Even given a migration towards global equities and away from fixed income, emerging market fixed income remains well-placed," it said.
Elsewhere, Hong Kong and Chinese shares were among the hardest hit as investors took profits from recent gains, with indexes faltering at technical resistances. Hong Kong shares slipped from a 19-1/2-month high and were down 0.4 percent while Shanghai shares fell 0.5 percent, moving further away from a 7-1/2 month high.
"We have risen by quite a bit in a very short time, so investors have been taking some profit in the last week or so, looking for new ideas to rotate into," said Larry Jiang, chief strategist at Guotai Junan International Securities.
Australian shares bucked the trend to edge up 0.2 percent to their highest close in almost 21 months after miner BHP Billiton gained after reporting a rise in quarterly iron ore production.
European markets are seen rising, with financial spread-betters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open as much as 0.4 percent higher. U.S. stock futures were down 0.2 percent, pointing to a softer Wall Street start.
On Tuesday, hopes of an improvement in the global economy led the Standard & Poor's 500 Index to a five-year high.
Investors were also cheered by easing worries over the U.S. budget crisis.
Republican leaders in the House of Representatives said they aim to pass on Wednesday a nearly four-month extension of the U.S. debt limit to May 19.
U.S. crude was down 0.1 percent to $96.59 a barrel and Brent eased 0.2 percent to $112.23.
Spot gold was at $1,692.66 an ounce, near Tuesday's one-month high of $1,695.76, while London copper traded down 0.3 percent at $8,107 a tonne but clinging near a one-week high of $$8,144.50 hit on Tuesday.