GLOBAL MARKETS-Asian shares reverse losses, capped before Fed meeting
* MSCI Asia ex-Japan up 0.3 pct, Nikkei charges up 2.3 pct
* Dollar recovers vs yen, but hovers near lows against major currencies
* Copper rises on short covering after steep weekly losses
* European shares seen narrowly mixed
By Chikako Mogi
TOKYO, June 17 (Reuters) - Asian shares struggled to extend gains after reversing early losses on Monday as investors hunkered down before the U.S. Federal Reserve meeting's outcome later this week, and maybe some long-awaited clarity on its intentions for monetary stimulus.
Uncertainty over the Fed's future policy course has triggered a sharp sell-off in broad risk assets over the past few weeks, offering dip buying levels for some Asian equities.
MSCI's broadest index of Asia-Pacific shares outside Japan erased earlier losses to rise 0.3 percent. It tumbled to its lowest since September on Thursday.
European stocks look set to start in tight ranges, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX will open between a 0.2 percent rise and a 0.2 percent drop.
A 0.4 percent rise in U.S. stock futures signalled a more solid Wall Street start, after U.S. stocks fell on Friday for its third negative week in four despite data showing the U.S. economic recovery was still not strong enough to warrant an imminent change in the Fed's current position.
Hong Kong shares rose 1.2 percent as buyers emerged in search of short-term gains after shares fell the past five weeks. Shanghai shares inched up 0.1 percent but were weighed by cash rates which stayed tight on worries the central bank will not inject funds into the interbank market.
"The fast money is rolling into the defensive Hong Kong large caps that have been hit quite badly by the QE tapering talk in the last few weeks," said Steven Lam, an analyst with Karl Thomson Securities.
Australian shares regained positive territory to inch up 0.1 percent from a 1 percent drop earlier in the day. They posted their biggest one-day rise in 18 months on Friday.
Still, investors remained wary ahead of the Fed policy meeting over Tuesday and Wednesday, where the central bank may reiterate its commitment to a massive bond-buying programme for now, but may also hint at tapering stimulus as long as the economy is showing some improvement.
Data on Friday showed May U.S. industrial output was unchanged, below a 0.2 percent forecast rise, while Thomson Reuters and University of Michigan's index of U.S. consumer sentiment unexpectedly fell from a near six-year high in early June.
The U.S. economy may not be picking up much steam but it was also not facing deflationary pressure, with the producer price index up 0.5 percent last month, above a 0.1 percent gain forecast.
"Although no change in policy settings is expected, the ability of Fed Chairman Bernanke to communicate effectively the Fed's strategy over 'tapering' will be crucial to determine whether market volatility persists or lessens," analysts at Credit Agricole CIB said in a research note.
DOLLAR INDEX SLUGGISH
The dollar was top-heavy against a basket of six major currencies, trading up 0.14 percent but hovering near a four-month low of 80.50 hit on Thursday.
Goldman Sachs said in a research report that despite moderate growth in the United States relative to the rest of the world, the latest TIC data released last week indicated a lack of any notable capital inflows, which, along with the persistent trade deficit, remains negative for the dollar.
The dollar recovered against the yen, however, rising 0.7 percent to 94.72 and helping underpin sentiment for Japan's benchmark Nikkei stock average, which climbed 2.7 percent after opening lower.
The dollar hit a 10-week low of 93.75 yen on Thursday, bringing it down nearly 10 percent from last month's 4-1/2-year peak of 103.74 yen. The dollar ended last week down 3.4 percent for its biggest weekly loss since July 2009.
The dollar's fall against the yen has also been linked to speculators and investors cutting back their yen short positions after the Bank of Japan took no action to quell a highly volatile domestic bond market last week, sparking a sell-off in the Nikkei and erasing gains made since the central bank's big-bang stimulus unveiled on April 4, which had helped propel the index up to a 5-1/2-year high last month.
"The reaction to the BOJ's no-action brought the dollar/yen and Nikkei back to levels before the bazooka stimulus in April, leaving markets wondering whether the BOJ's 2 percent inflation target is achievable without a weak yen," said an official at a Japanese institutional investor.
The Reserve Bank of India bank held its main interest rates steady after the Philippines and South Korean central banks kept rates unchanged last week amid the spike in global risk aversion.
U.S. crude futures fell 0.4 percent at $97.47 a barrel and Brent eased 0.4 percent to $105.52.
London copper rose 0.8 percent to $7,143.25 a tonne on short covering following its steepest weekly decline in two months last week, ahead of the Fed meeting.