RPT-GLOBAL MARKETS-Asia stocks rally, oil extends slide

(Repeats to wider audience, with no changes to text)

* Asian stocks rally on hopes U.S. rates to remain on hold

* Dollar extends gain, oil slides further

* Bonds firm, indicating continued risk aversion

By Rafael Nam

HONG KONG, Aug 6 (Reuters) - Asian shares rallied on Wednesday, ending a three-session losing streak, led by exporters on expectations the U.S. Federal Reserve will not lift interest rates anytime soon.

Exporters also benefited from gains in the dollar. The U.S. currency touched a 7-week high against the yen as sliding oil prices eased concerns that higher energy costs will adversely impact the world's largest economy.

Crude prices CLc1 dropped further below $120 a barrel after Tropical Storm Edouard hit the Texas coast without causing any major disruption to U.S. energy operations.

But investors still held to some of their safe bond holdings, in a sign of lingering caution. Japanese government bond futures hit a 4-month high amid worries about the outlook for the world's second-largest economy.

"The scene was set for today with the fall in oil-inspired rally in the U.S. and the Federal Reserve retaining a neutral stance," said Stuart Smith, a private client adviser at Bell Potter Securities in Australia.

The Fed held rates steady at 2 percent on Tuesday, expressing concerns about both economic growth and inflation and indicating it is in no rush to push borrowing costs higher. [ID:nN05346575]

It is expected to hold rates steady for the rest of the year as concerns about the U.S. economy trump fears about rising inflation, according to a Reuters poll. [FED/R]

Several Asian central banks face a similar dilemma: how to manage slowing economic growth at a time of rising inflationary pressures, though the recent slide in commodity prices may change perceptions.

Indonesia's central bank raised rates by 25 basis points on Tuesday, the fourth hike this year, though economists say the tightening campaign may be over in the next few months. [ID:nJAK198573]

The MSCI index of Asian stocks outside Japan .MIAPJ0000PUS gained 1.6 percent, rebounding after hitting its lowest since March 2007 on Tuesday. It was also the index's first day of gains after notching three consecutive days of losses.

Tokyo's Nikkei benchmark .N225 rose 2.2 percent, powered by exporters such as Honda Motor Co (7267.T) and Canon Inc (7751.T). Shares in Australia .AXJO, South Korea and Taiwan also climbed 2 percent or more.