* MSCI Asia ex-Japan capped, Nikkei turns positive
* Euro hovers near 7-week lows vs dollar
* China manufacturing data lacklustre, but no recession seen
* European shares likely narrowly mixed
By Chikako Mogi
TOKYO, March 1 (Reuters) - Asian shares were capped on Friday, with sentiment dented by lacklustre manufacturing data from China and worries over the economic fallout from Italy's political confusion as well as possible U.S. spending cuts.
European markets are seen narrowly mixed, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open between a 0.1 percent rise and a 0.2 percent fall. Italy's main FTSE MIB stock market index is expected to open down 0.2 percent.
A 0.1 percent drop in U.S. stock futures also hinted at a weak Wall Street start.
But losses were limited by renewed confidence that major central banks will keep taking stimulative steps to support their economies.
China's factory growth cooled in February to multi-month lows after domestic demand dipped to weigh on firms already hit by slack foreign sales, two surveys showed on Friday, underlining the country's patchy economic recovery. But it does not signal China's economy is slipping into another slowdown, analysts said.
China's February official purchasing managers' index (PMI) came in at 50.1, slightly below a 50.2 Reuters poll consensus and the 50.4 posted in January. A private survey showed the final HSBC PMI fell to 50.4 after seasonal adjustments from January's two-year high of 52.3, in line with a flash reading.
"While comfort can be sought from the fact that the Chinese economy remains in expansion territory, the dip from prior PMI readings does illustrate that the recovery is far from linear and that there are still a few bumps in the road," said Tim Waterer, senior trader at Sydney-based CMC Markets.
The MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent, after ending February up 0.5 percent, showing muted reaction to Chinese data.
Australian shares slipped 0.4 percent, pulling back from 4-1/2-year highs touched in the previous session, as big miners lost ground on lower metal prices. South Korean markets were closed on Friday for a public holiday.
The Australian dollar, which is sensitive to data from China, Australia's largest trading partner, was up 0.2 percent to $1.0230.
Japan's Nikkei stock average erased earlier losses to rise 0.5 percent, lifted by expectations for strong reflationary measures from the Bank of Japan in coming months.
Stocks in Indonesia edged higher to a fresh record. Data showed Indonesia's trade deficit narrowed slightly in January from the previous month as exports posted their smallest fall in nearly a year, reflecting recovering global demand and providing early hope that the nation's external balances may improve in 2013.
From Japan, Friday's data showed Japanese companies cut spending on plant and equipment in October-December by 8.7 percent from the same period last year, down for the first time in five quarters amid a slump in exports, showing the world's third-largest economy was still struggling to find a solid footing.
In contrast, a drop in new U.S. claims for jobless benefits last week and a sharp rise in factory activity in the Midwest in February suggested the U.S. economy is improving.
The relative outperformance of the world's leading economy over Japan's may soon turn the Japan-based yen selling into U.S.-led dollar buying, giving a fresh push higher in the dollar/yen, traders say.
The dollar inched up 0.1 percent to 92.65 against the yen .
One factor that could cloud such a positive outlook is the uncertainty over the possible extent of economic damage from the $85 billion in automatic across-the-board "sequestration" spending cuts in the United States set to begin taking effect on Friday.
"Financial markets are eerily calm about the issue. Nobody is talking about the sequestration, and I worry about the seeming lack of interest when market sentiment is far from stable after sharp swings following the Italian election," said Hiroshi Maeba, head of FX trading Japan at UBS in Tokyo.
He said reaction, if any, will likely come in equities and bonds first and spill over to forex, hitting risk-sensitive currencies which may possibly underpin the dollar.
The International Monetary Fund said on Thursday it would likely cut its 2013 growth forecasts for the United States by at least a 0.5 percentage point if the cuts are fully implemented. The IMF now projects that the U.S. economy will grow 2 percent this year.
"The $85 billion in spending cuts is simply too small to make much of a difference to the economy and although it could cause some problems, it will have no bearing on influencing investor allocations among different asset classes," said Ed Meir, an analyst at INTL FCStone, in a note.
U.S. crude fell 0.1 percent to $91.93 a barrel, after earlier hitting a 2013 low of $91.43. Brent crude fell 0.3 percent to $111.05 after falling to a six-week low of $110.86 earlier. Oil prices were weighed by concerns about the global economy and the strength of demand.
Spot gold inched down 0.1 percent to $1,578.81 an ounce after dropping more than 1 percent on Thursday and ending February with its fifth straight monthly drop, the longest string of monthly declines since 1996.
The euro was up 0.1 percent to $1.3074, but near a seven-week trough of $1.3018 plumbed earlier in the week.