* Portfolio flows to emerging markets decline sharply - IIF
* RBA Governor comments drive Aussie higher
* Hong Kong stocks rise, lifted by financials and utilities
* Oil up on expectations of balanced market
By Saikat Chatterjee
HONG KONG, Oct 18 (Reuters) - Asian shares extended gains on Tuesday, pulled higher by financials and a rebound in oil prices, while the Australian dollar hit a two-week high as investors trimmed expectations for a central bank rate cut this year.
Despite the bounce in risk-sensitive assets in Asia, volumes were light with markets hugging well-worn trading ranges. Investors are now awaiting China data due this week, including the September quarter gross domestic product on Wednesday, after last week's trade figures raised concerns about the health of the world's second-biggest economy.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.8 percent, extending earlier gains. Australia's benchmark index was up 0.4 percent while Japanese stocks edged higher on a softer yen. European shares are expected to open higher, tracking the Asian moves.
"Investors are slightly risk averse while their attention has been on the dollar-yen levels," said Kazuhiro Takahashi, an equity strategist at Daiwa Securities. "They are waiting for a turning point, and until then, they will likely stay on the sidelines.
China's B share market bounced 1.5 percent after tumbling more than 6 percent on Monday on concerns of extended yuan weakness while Hong Kong shares rose, led higher by financials and utilities.
"The Hong Kong markets should find some support around current levels though the weak outlook from the telecom and the property sector and continued concerns of yuan weakness will prevent any sharp gains," said Alex Wong, a portfolio manager at Ample Capital, which has $100 million in assets under management.
As campaigning for the U.S. presidential elections enters its home stretch and concerns about the Chinese economy deepen after last week's weak trade data, risk aversion is broadly on the rise - forcing investors to cut positions after a strong rally in risky assets in the third quarter of 2016.
Daily portfolio flows to emerging markets declined sharply last week with the seven-day moving average falling to its lowest level since a surprise Chinese currency devaluation in August 2015, according to data from Institute of International Finance.
"It's been an incredibly quiet start to the week as most currencies remain rangebound but don't let this sense of calm fool you as markets may be poised to explode," said Stephen Innes, a senior trader at FX broker OANDA, referring to a multitude of macro-economic risks on the horizon.
Adding to the headwinds for emerging markets is the growing likelihood of a U.S. rate increase in December which has lifted 10-year U.S. Treasury yields by 25 basis points so far this month and boosted the dollar.
Wall Street ended down as lower oil prices weighed on energy shares. Stock futures were flat in Asian trade.
Major currencies were confined in broad trading ranges on the back of soggy U.S. data and the absence of fresh triggers.
"Rangebound trading continues, with the 104 level heavy for the dollar-yen," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "It's just short-term guys, playing in the market."
The dollar index, which tracks the greenback against six major rivals, was flat at 97.74, after rising as high as 98.169 in the previous session, its highest level since March 10.
Still, some risk indicators in the market were flickering green such as the Australian dollar, which was up around 0.6 percent at $0.7669. This came after comments from Reserve Bank of Australia Governor Philip Lowe, which suggested the bar for further rate cuts this year is higher than what markets currently expect.
Meanwhile, oil prices rose on hopes the market may not be as oversupplied as some analysts believe.
International benchmark Brent crude was up 0.5 percent while U.S. West Texas Intermediate (WTI) edged 0.6 percent higher.
Safe-haven gold was firm around the $1250 per ounce level as growing risk aversion encouraged buyers, halting a 6 percent fall over the last few weeks.
(Additional reporting by Lisa Twaronite and Ayai Tomisawa in Tokyo; Editing by Eric Meijer and Sam Holmes)