* Dollar falls as Summers drops out of race for Fed chair
* Summers seen as more hawkish than other main contender, Yellen
* Shares, bonds rally on expectation policy to stay easy for longer
* Oil slips in wake of U.S., Russia deal on Syria
By Wayne Cole
SYDNEY, Sept 16 The U.S. dollar slid while bonds and shares rallied in Asia on Monday after news Lawrence Summers had dropped out of the race to head the Federal Reserve promised to prolong the lifetime of super-easy money.
Further whetting risk appetite was signs of progress on Syria, all of which helped Australian shares to a five-year peak and South Korean shares to a six-month high.
European bourses looked keen to join the party as German, French and pan-European stock futures started with gains of 1 percent or more.
Summers' surprise decision came just before the central bank meets on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from the current pace of $85 billion a month.
Investors wagered that U.S. monetary policy would stay easier for longer should the other leading candidate for Fed chair, Janet Yellen, get the job.
Markets had perceived Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale it back quicker than the more dovish Yellen, who is currently second in command at the Fed.
"Short-term interest rates are going to remain at zero for longer than you ever would have imagined," should Yellen get the chair, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ.
It was even possible a first rate rise could be pushed out into 2016, rather than 2015 as currently planned, he said. Going by Yellen's past speeches, she would likely make getting the jobless rate down a priority.
"Yellen looks like the clear front-runner, and seems to be the public's popular choice," he argued. "The Fed will shoot to lower the unemployment rate to the full employment level, and this means the new target could be more 5.5 percent, not 6.5 percent."
The market reaction was swift with the euro up half a U.S. cent at $1.3355, after reaching its highest in almost three weeks. The dollar also dropped against sterling and the Swiss franc.
It proved more resilient against the yen, which was weighed by its status as a safe-haven, and pared early losses to stand at 98.92. Liquidity was lacking with Japanese markets closed for a holiday on Monday.
Stock futures for the S&P50 index climbed 1 percent to 1,706.50, leading Asian bourses higher.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.5 percent to their highest since early June. South Korean shares added 1 percent, Australia 0.5 percent and Indonesia 1.7 percent.
Markets in China bucked the trend with Shanghai's main index down 0.3 percent.
Sentiment was also underpinned by Saturday's deal between Russia and the United States to demand that Syrian President Bashar al-Assad account for his chemical arsenal within a week and let international inspectors eliminate all the weapons by the middle of next year.
PUSHING OUT THE HIKE
In debt markets, futures for the U.S. Treasury 10-year note leaped almost a full point, a sizable move for Asian hours, as investors took yields lower.
There was no trading in cash Treasury paper in Tokyo, and yields fell in early London deals.
The more distant Eurodollar contracts rallied sharply as the market pared back expectations for how quickly the Fed might finally start to tighten, as opposed to just tapering its stimulus.
Contracts from late 2014 out to 2016 all enjoyed double-digit gains suggesting a hike was now considered more likely in 2015, rather than in late 2014.
The prospect of a more protracted easing cycle would be a big relief to emerging markets from India to Brazil which have been hammered by expectations offshore funds would switch to developed markets as yields there rose.
Gold recouped some of last week's losses, with the metal rising to $1,326.90 an ounce, from around $1,308.
Oil prices declined as the likelihood of a U.S. strike on Syria seemed to recede further. Brent crude lost $1.02 to $110.68 a barrel, while NYMEX crude shed 89 cents to $107.32 CLc1>.