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* MSCI Asia ex-Japan up, profit-taking caps Nikkei below recent high
* Dollar index down as euro rises on stability in euro zone crisis
* Commodities pause from selling, gold recoups previous day's loss
* European shares likely to edge higher
By Chikako Mogi
TOKYO, May 14 (Reuters) - Asian shares steadied on Tuesday, snapping a two-day losing streak as a suprising rise in U.S. retail sales boosted optimism about the recovery in the world's largest economy, but the dollar took a breather after recent broad gains ahead of more data.
European stock markets are expected to start higher, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open as much as 0.3 percent higher, while a 0.1 percent rise in U.S. stock futures also pointed to a firm Wall Street open.
Commodities prices stabilised and gold gained as much as 1 percent to recoup losses from the previous session as the dollar paused from a three-day rally, shedding 0.3 percent against a basket of key currencies after nearing this year's high of 83.494 touched last month.
The dollar was also dented by the euro's 0.3 percent rise to $1.3010.
Stability in the euro zone was evident in Monday's drop in Italy's three-year debt yields to their lowest since January as investors, backstopped by European Central Bank guarantees, brushed off concerns about the country's political and economic troubles.
"The dollar's climb is based on the recovery scenario for the U.S. economy, with the strong dollar denting sentiment for commodities which have been weakened by the sluggish growth in emerging countries," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory in Tokyo.
"But the prospect for firmer U.S. growth will raise demand for commodities and lift their prices eventually," he said, also noting the normalisation in financial markets as seen by falling yields in the peripheral euro zone countries such as Italy.
U.S. retail sales unexpectedly rose in April, prompting Goldman Sachs and JPMorgan to upgrade their view on second-quarter growth. More data will be released this week, including industrial production, housing starts and consumer sentiment.
An optimistic outlook for the U.S. economy stirred market talk that the U.S. Federal Reserve could scale back its aggressive bond-buying programme aimed at supporting growth, which has helped drive prices of risk assets higher.
In Asia, the benchmark 10-year Treasury yield stayed near a six-week high of 1.925 percent touched overnight in New York.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, with Australian shares inching up 0.1 percent and South Korean shares climbing 0.9 percent.
"Renewed foreign investor buying, encouraged by U.S. retail sales data, is boosting the market today," said Cho Seong-joon, a market analyst at NH Investment & Securities, of Seoul stocks.
But Chinese shares were headed for their worst daily loss in three weeks, dragging Hong Kong markets into the red, after official media suggested that Beijing is unlikely to ease policy despite patchy April economic data. Hong Kong shares fell 0.4 percent and Shanghai slipped 1.4 percent.
JAPAN MARKETS REALIGNING
The Nikkei stock average gave up early gains as investors took profits after the index added as much as 1.7 percent on Monday to a fresh peak since January 2008.
Japanese equities have been bolstered by the weak yen trend, which accelerated after the Bank of Japan's April 4 launch of a sweeping monetary expansion campaign aimed at breaking a 15-year deflationary cycle and putting the economy on a sustainable growth path.
The dollar fell 0.4 percent against the yen to 101.45 , after reaching a 4-1/2-year high of 102.15 yen on Monday. The euro was down 0.1 percent against the yen at 131.95 after touching its highest since January 2010 on Monday.
In the Japanese government bond market, yields jumped across the board despite a 30-year bond auction, carrying a 1.8 percent coupon, which was deemed decent. The benchmark 10-year JGB yield rose to a nine-month high of 0.850 percent, as JGB futures shed 1 point to a 13-month low, while the five-year JGB yield rose to 0.4 percent, its highest since July 2011.
"In light of the yen's remarkable move, JGB yields had been relatively inactive, so investors may be feeling more inclined to stay sidelined to see whether the JGB market will adjust to levels in line with the currency rates," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
Japanese life insurers are seen stepping up foreign bond buying without currency hedges if they can confirm a clear and steady decline in the yen, to hunt for higher yields overseas.
"If the BOJ says it will achieve 2 percent inflation in two years, 30-year bonds yielding 1.8 percent just don't match up. So investors are perhaps sending a message," Sera said.
"What's more intriguing, though, is the very slow pace of rise in U.S. Treasury yields, despite market talk of a possible change in the Fed's stance," she said.
With a rebound in commodities prices as the dollar eased, the Australian dollar added 0.4 percent to $0.9986, moving away from Monday's 11-month low of $0.9940.
Spot gold rose 1 percent to a session high of $1,444.96 an ounce as a weaker dollar helped the metal snap a three-day decline.
U.S. crude futures were up 0.2 percent at $95.38 a barrel and Brent steadied around $102.83.