GLOBAL MARKETS-Asian shares extend gains as Fed, China fears subside
* MSCI Asia ex-Japan rises 1.8 pct, Nikkei jumps 3 pct
* Fears of Fed stimulus withdrawal, China crunch ease
* China money market rates dip further, still elevated
* Precious metals rebound, oil extends gains
* European shares likely rise
By Chikako Mogi
TOKYO, June 27 (Reuters) - Asian shares extended gains for a second day on Thursday, buoyed by hopes that the U.S. Federal Reserve will not rush to end its stimulus programme, and by further signs that stresses in China's banking system are easing.
European stocks were also seen crawling higher, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open up as much as 0.4 percent.
A 0.1 percent rise in U.S. stock futures also suggested a firm Wall Street open.
"The recent sell-off seems to have found a bottom and some bruised bulls are dusting themselves off and going on the hunt for some quite heavily discounted bargains," Jonathan Sudaria, a trader with Capital Spreads, said in a note to clients.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.8 percent, adding to Wednesday's 1.9 percent climb which broke a four-day losing streak and pushed the index away from an 11-month low touched earlier in the week.
The index has wiped out this week's steep losses and escaped from extremely bearish territory, but its relative strength index (RSI) remained near oversold levels, with investors still shell-shocked after a month-long emerging markets slide.
The market tone improved overnight after a surprisingly sharp downward revision to first-quarter U.S. economic growth calmed fears that the Fed would soon wind down the massive bond-buying scheme that has underpinned investors' risk appetite.
Steadying Chinese markets also helped calm emerging market currencies and stocks, though trading in Shanghai was still choppy.
Chinese money market rates moderated for a fifth day on Thursday after last week's spike and stocks recovered some of their recent hefty losses as fears of a credit crunch eased.
Hong Kong shares rose 1.1 percent after touching a one-week high on better-than-expected China industrial profits data.
Shanghai shares rose as much as 1.2 percent as fears of a credit crunch receded, boosting financials. But confidence remained fragile, with major benchmarks surrendering their gains before the close and dipping into the red.
"It's just bargain-hunting. There are still lots of uncertainties ahead," said Ben Kwong, KSI Asia Ltd's chief operating officer in Hong Kong, adding that he expected the Hang Seng to seesaw between 20,000 and 21,000 points in coming weeks.
"The market will still have quite of lot of volatility in the third quarter," he said.
Japan's Nikkei stock average, which was pulled down on Wednesday by losses in Chinese shares, soared 3 percent, its biggest one-day percentage gain in 13 sessions.
Seoul shares extended gains to shoot up 3 percent before ending up 2.87 percent, as foreign investors turned net buyers and snapped 14 straight sessions of selling.
CHINA ISSUE CONTAINABLE
With growing confidence in risk assets, Asian credit markets rallied, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 11 basis points.
The People's Bank of China did not drain any cash from the open market on Thursday. While short-term borrowing rates eased, they remained elevated, but traders said the credit crunch panic that gripped the market last week had subsided.
Volatility was amplified this week by fears that a crisis in China's banking system would undermine growth in the world's second-largest economy and offset the benefits of a stronger U.S. economy.
Chinese markets regained some stability after the central bank earlier this week moved to quell concerns, saying it had provided funds to some institutions and will do so again if needed.
Yet, it remained commited to cracking down on risky informal lending, pointing to tougher conditions for the banking sector ahead and likely more bouts of nerves in Asian markets.
"There is a risk that squeezed credit could lead to 'shadow banks' failing, destabilising China's financial system and undermining growth, raising downside risks globally - particularly for countries with a high reliance on the Chinese economy," said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
Fears of reduced availability of external funding, triggered by the Fed's plan announced last week to eventually cut its stimulus campaign, sent the Indian rupee to an all-time low of 60.76 on Wednesday, driving home the vulnerability of countries with limited reserves and high current account deficits. The rupee was at 60.54 on Thursday.
Worries about China and the prospect of an eventual end to the Fed's quantitative easing were likely to support the dollar, often seen as a safe haven in times of market turmoil.
The dollar eased 0.17 percent this session against a basket of major currencies after reaching a near one-month high of 83.025 on Wednesday. It rose 0.3 percent against the yen to 97.97.
U.S. Treasuries prices ended higher on Wednesday on weaker than expected GDP, but a five-year Treasury note auction drew the lowest demand since September 2009, revealing persistent jitters over the Fed's future policy course.
U.S. crude futures rose 0.4 percent to $95.85 a barrel and Brent added 0.5 percent to $102.19.
Spot gold surged 1.6 percent to $1,244.50 an ounce after a 4 percent tumble on Wednesday which brought prices to near three-year lows of $1,221.80 an ounce. Gold was last trading up 1.2 percent to $1,239.70. Gold was seen pressured by the dollar's bullish outlook.
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