* MSCI Asia ex-Japan steadies after Monday's 1.5 pct tumble
* MSCI pulled down by India as key govt ally pulls out of
* Nikkei surges 2 pct
* Treasuries, JGBs, ease slightly after sharp rally
* European shares seen extending small losses
By Chikako Mogi
TOKYO, March 19 (Reuters) - Asian shares steadied as
investors awaited a parliamentary vote in Cyprus on a bailout
plan crucial to avert bankruptcy, but potential political
instability in India emerged as a fresh worry.
A 1.3 percent tumble in Indian shares dragged down
the MSCI's broadest index of Asia-Pacific shares outside Japan,
erasing earlier gains to hold steady.
The fall in Indian shares followed a key regional ally
pulling out of India's ruling coalition on Tuesday in protest
against the government's position on a U.S.-backed United
Nations resolution on war crimes committed during Sri Lanka's
European markets are seen extending small losses, with
financial spreadbetters predicting London's FTSE 100,
Paris's CAC-40 and Frankfurt's DAX to open
around 0.2 percent down.
Benchmark indices in Spain and Italy are
seen down 0.4 percent and down 0.2 percent respectively. U.S.
stock futures were nearly flat, hinting at a calmer start
for Wall Street.
Euro zone confidence was partially restored by news on
Monday that the Eurogroup decided to give Cyprus more
flexibility over a bank levy which is part of the bailout
conditions, after a teleconference of euro zone finance
"The worry about Cyprus is overdone, as the scenario there
is unlikely to spread to bigger euro zone countries. Global
markets were due for a correction after last week's long rally,"
said Lee Young-gon, an analyst at Hana Daetoo Securities.
South Korean shares led the early gains in the
pan-Asian region with a 0.5 percent rise, as bargain hunters
drove the market up from Monday's one-month lows, while
Australian shares gave up early gains to fall 0.6
percent, extending Monday's 2 percent loss after minutes of the
Reserve Bank of Australia's latest meeting were read as reducing
the chances of a rate cut.
Japan's Nikkei stock average gained back 2 percent
after shedding 2.7 percent for its biggest one-day percentage
drop in 10 months on Monday as the yen rose broadly. Japanese
financial markets will be closed on Wednesday for a holiday.
As a knee-jerk flight to safety subsided, the dollar
steadied around 82.757 against a basket of major currencies
, after inching closer on Monday to a seven-month high of
83.166 hit last week.
A recovery in general risk sentiment supported Asian credit
markets, narrowing the spread on the iTraxx Asia ex-Japan
investment-grade index by five basis points.
The Thai baht on Tuesday hit its strongest since the 1997
Asian financial crisis on sustained inflows as some investors
saw the Cyprus/euro zone issue as unlikely to affect appetite
for Thai assets.
The key 10-year U.S. Treasury yield inched up 1
basis point to 1.967 percent in Asia while 10-year Japanese
government bond yields also added 1 bps to 0.595
Spot gold eased 0.1 percent to $1,603.58 an ounce
after climbing as much as 1 percent to a three-week high on
"There are worries, but the extent of such worries is
limited, reflected in the fact that some investors panicked and
others used the opportunity to pick up (risky assets)," said
Jiang Shu, an analyst at China's Industrial Bank.
"After all, the U.S. economy is doing much better than 2009
and 2010, which helped blunt the blow from Cyprus."
The euro zone's decision over the weekend to partially fund
a bailout of Cyprus by taxing bank deposits, which raised fears
the measure could set a precedent for future euro zone bailouts,
and destabilise its financial system, rattled investors and
alarmed policymakers outside Europe.
"It is, in a way, a prohibited measure. I acknowledge it is
a request from the EU and the IMF but it needs to make sure
(other nations know) this is an exceptional measure. If this
happens to other nations, it would cause significant agitation,"
Japanese Economics Minister Akira Amari told reporters on
The euro hit a three-week low of $1.2882 on Monday
but was trading at $1.2940 on Tuesday.
Stability in the euro eased pressure on oil prices but they
remained vulnerable. U.S. crude oil were nearly flat at
$93.75 a barrel while Brent eased 0.2 percent to
"While there still is uncertainty over Cyprus ahead of the
vote, markets for now see it as a one-off case that will not
trigger a contagious run on deposits in other euro zone states,"
said a senior official at a Japanese institutional investor.
"But I fear this could elevate hurdles for Germany to
approve burden-sharing in future bailouts when the euro zone
faces another financial crisis," he said, referring to how
Germany has been pushing for strict conditions in exchange for