GLOBAL MARKETS-Asian shares edge higher supported by Fed, China factory activity
* MSCI Asia ex-Japan inches up, Nikkei rises to 4-1/2-year peak
* Euro stabilises on Cyprus optimism
* Dollar underpinned by U.S. economy, Fed's easy stance
* China manufacturing activity improves in March
* European shares likely to ease
By Chikako Mogi
TOKYO, March 21 (Reuters) - Asian shares inched higher and the dollar steadied on Thursday, as a pick-up in Chinese factory activity and a commitment by the U.S. Federal Reserve to its aggressive stimulus stance soothed sentiment rattled by wrangling over a bailout plan for Cyprus.
European markets, however, were expected to ease as investors await negotiations over the Cyprus deal, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open down as much as 0.2 percent.
Benchmark indices in Spain and Italy were seen to open 0.3 percent and 0.2 percent lower respectively. U.S. stock futures were little changed, hinting at a calm Wall Street start.
The HSBC Purchasing Managers' Index for China revived to 51.7 in March from 50.4 in February, pointing towards solid but not spectacular first-quarter growth in the world's second-largest economy.
"China's growth at 10 percent is amazing, growth at 8 percent is quite strong, but China growth at 6 percent is still a lot better than any other developed country out there," said Carl Larry, president of Houston-based Oil Outlooks and Opinions.
The MSCI's broadest index of Asia-Pacific shares outside Japan, rose 0.1 percent. Hong Kong shares gave up earlier gains to trade nearly flat while Shanghai shares entered positive territory to add 0.4 percent after the China PMI.
Shares in Australia gave up early gains to end a volatile session 0.2 percent lower, hit by political uncertainty as Prime Minister Julia Gillard faced a leadership challenge. The Chinese data earlier lifted the Australian dollar to a high of $1.0393 before it retreated to $1.0373.
China is Australia's largest trading partner.
South Korean shares trimmed earlier gains to ease 0.3 percent, weighed down by cyber security scare and tensions with North Korea.
North Korea said it would attack U.S. military bases on Japan and the Pacific island of Guam if provoked, a day after leader Kim Jong-un oversaw a mock drone strike on South Korea.
"The HSBC figures were definitely a help," said Guy Stear, head of research with Societe Generale in Hong Kong. But he said there were lingering concerns about the strength of China's economic recovery.
While developments in the United States and other major economies affected broader trends in Asia, market players were increasingly looking at individual countries or region for trading clues.
"Asia this year is much more of a country by country or region by region case than it was last year for example." he said.
Japan's Nikkei stock average climbed 1.3 percent, hitting a 4-1/2-year high as exporters gained on the Fed's continued stimulative stance and expectations of further monetary easing by the Bank of Japan.
New BOJ governor and his two deputies will hold the central bank's inaugural news conference later on Thursday. They are under pressure to deliver strong reflationary steps as part of Prime Minister Shinzo Abe's drive to end deflation and bolster growth.
Such views sent the 10-year Japanese government bond yield down to 0.58 percent, the lowest since June 2003.
The dollar steadied against a basket of major currencies and was trading around 95.81 against the yen.
The Fed kept its aggressive policy stimulus despite improvements in the U.S. economy, pointing to still-high unemployment, fiscal headwinds out of Washington and risks from abroad.
Fed Chairman Ben Bernanke said the central bank might slow the pace of its bond buying but only after the labour market showed sustained improvement over a number of months.
The euro inched up 0.1 percent to $1.2948, off a four-month low of $1.2844 hit on Tuesday, as investors bet on policymakers finding a fix for a Cyprus bailout after the country rejected the terms of a European Union rescue.
"Market participants are probably right to expect a resolution of the immediate crisis that does not destabilize broader European and global financial markets," Barclays Capital said about the bailout prospects for Cyprus.
U.S. crude futures fell 0.3 percent to $93.28 a barrel while Brent eased 0.1 percent to $108.67.
London copper extended gains to rise 0.9 percent to $7,687 a tonne.
"Demand from China is showing signs of picking up and the U.S. commitment to its easing policy should feed into more demand," said economist Alexandra Knight at National Australia Bank in Melbourne.
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