GLOBAL MARKETS-Nikkei up on election win, yen tempers rally
* Nikkei pares gains as yen climbs off lows
* Japan's PM wins big in upper house vote but outcome expected
* Europe shares seen opening higher
* Asia-Pacific shares ex-Japan show slight gains, Hang Seng touch lower
* Broadly softer dollar helps underpin commodity prices
By Ian Chua
SYDNEY, July 22 (Reuters) - Japanese stocks led Asian markets higher on Monday after Prime Minister Shinzo Abe's big election win over the weekend, but a rebound in the yen prompted some profit taking that knocked the Nikkei off highs.
Most other Asian share markets were modestly higher, although Hong Kong's Hang Seng and mainland Chinese stocks lost a bit of ground.
European shares were seen opening higher. "This week's economic data and earnings results could set a bullish tone in the markets," Jonathan Sudaria, a dealer at Capital Spreads in London, wrote in a note.
Tokyo's Nikkei ended 0.5 percent higher, having earlier climbed as much as 1.2 percent. Exporters such as Nissan Motor underperformed as the dollar slid below 100 yen .
Abe's victory in the election for the upper house of parliament, which was widely expected, should make it easier for him to push through painful economic reform, the "Third Arrow" of his "Abenomics" prescription to end deflation. The other two arrows are ultra-easy monetary policy and spending.
"The results of Sunday's election are pretty much fully priced in and we're seeing more sell on the fact type moves," said a trader in Tokyo, adding overall flows were light.
Another dealer said markets were now turning to earnings results due in major financial centres over next few weeks for fresh trading cues.
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.4 percent, with South Korea's KOSPI was up 0.5 percent and Australia's S&P/ASX 200 index gained 0.6 percent.
YEN OFF LOWS
Abe's win should be negative for the yen, which initially plumbed a 1-1/2 week low against the dollar and a two-month trough on the euro.
But selling of dollars for yen by Japanese investors, which in turn triggered stop-loss selling in thin conditions, saw the Japanese currency bounce back in the short term.
That left the dollar down 0.6 percent on the day at 99.96 yen, a turnaround from a high of 101.05. The euro was also 0.6 percent lower at 131.51, well off an early high of 132.47.
Against the dollar, the euro drifted up 0.1 percent from late New York levels to $1.3153, while the Australian dollar advanced 0.5 percent to $0.9225.
The Aussie was further buoyed by news of more market-oriented reforms in the banking sector of China, Australia's single biggest export market.
China's central bank has removed controls on bank lending rates in a long-awaited move that could lower financial costs for companies, offering hopes that cheaper credit will help support the softening economy.
Commodities were mostly firmer thanks to the softer dollar. U.S. crude held near a 16-month peak of $109.32 a barrel, while copper gained 1.0 percent to $6,982 a tonne.
Gold reached a one-month high of $1,322.50 an ounce, continuing to recover from last month's eye-watering slide to a three-year low around $1,180.71.
There was little reaction to news that the Federal Reserve is "reviewing" a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets.
The one-sentence statement suggests the Fed is taking a much deeper, wide-ranging look than previously believed at how banks operate in commodity markets, amid intensifying scrutiny of everything from electricity trading to metals warehouses.