* Asian shares supported by reports Beijing to accelerate spending
* Euro undermined as ECB talk drags down bond yields
* US yields fall as auctions draw strong demand, inflation seen benign
* Emerging markets extend their recent rally, hit three-month high
By Wayne Cole
SYDNEY, March 28 (Reuters) - The euro was wallowing near three-week lows in Asia on Friday as speculation intensified that the European Central Bank might ease policy further, while reports Beijing would fast track infrastructure spending supported Asian shares.
China's Premier Li Keqiang was quoted by state media as saying the government would roll out targeted measures step-by-step to aid the economy.
Shares in Shanghai edged up 0.3 percent, while MSCI's index of Asia-Pacific shares outside Japan added 0.7 percent. Japan's Nikkei was flat as trading wound down ahead of the end of their financial year on March 31.
All the talk of a possible easing by the ECB pulled down bond yields across the European Union and undermined the euro. German inflation data is due later and a low reading would only add to the pressure.
Peripheral European bond yields are already at multi-year lows while the premium that U.S. two-year debt pays over German paper widened to its fattest since late 2012.
That saw the euro peel off to $1.3746 and a long way from its March peak of $1.3967. Its largest losses came against the New Zealand dollar which has been on a tear since the country's central bank raised interest rates a couple of weeks ago.
The Reserve Bank of New Zealand has all but promised to hike rates several more times this year, setting it far apart from other developed nations and sending its currency to a two-and-a-half year peak on the U.S. dollar.
Asian stocks had got little inspiration from Wall Street, where the Dow and the S&P 500 both ended a fraction lower. The Nasdaq extended its recent pullback with a loss of 0.54 percent.
Yet the sluggishness of U.S. stocks contrasts with a sudden revival in emerging markets, leading some to suspect that stretched valuations on Wall Street are prompting fund managers to go bargain-hunting elsewhere.
The MSCI index of emerging shares has climbed for six straight sessions to the highest in almost three months. The index for Latin America on Thursday boasted its biggest daily gain since July 2012 as Brazilian markets rallied.
Aluminium stocks also got a boost after plans by the London Metal Exchange to cut logjams in warehouses suffered a legal setback, helping lift India's Hindalco Industries 2.6 percent.
TREASURIES IN DEMAND
In debt markets, a sale of U.S. seven-year Treasury paper drew red-hot demand, just as a five-year auction did on Wednesday. Direct bidders, which include central banks, took a record share of the sale, leaving dealers scrambling to cover short positions.
The demand for U.S. debt also showed up in the amount of Treasuries that the Federal Reserve holds on behalf of foreign central banks, which surged by a record $56 billion in the week to Thursday, on top of a $32 billion jump the previous week.
The inflow almost entirely reversed a mysterious $104 billion drop three weeks ago that many had thought was due to Russia pulling its money out of the U.S. to avoid possible sanctions over Ukraine.
Whatever the source of the demand it has helped drag down longer-term U.S. yields and contributed to a marked flattening of the yield curve. The spread between five-year notes and 30-year bonds has shrunk to its smallest in five years.
The shift also reflects speculation that U.S. interest rates will rise sooner than first thought and thus keep inflation well contained below 2 percent.
The downward revision in the market's inflation expectations might also be one reason gold has taken a turn for the worse in recent sessions. On Friday the metal was stuck at $1,294.00 an ounce having lost 7 percent in nine sessions.
In the oil market, Brent added 7 cents to $107.90 a barrel , while U.S. crude futures edged up 29 cents to $101.57 . (Editing by Shri Navaratnam and Eric Meijer)