* Nikkei drops on higher yen, Wall St retreat
* Regional markets supported by outlook for easy US policy
* Euro undermined by talk ECB considering further stimulus
By Wayne Cole
SYDNEY, April 7 Asian markets were torn two ways on Monday, some following Wall Street lower but others encouraged by U.S. jobs data that hit the sweet spot for many investors -- firm enough to soothe concerns about the health of the U.S. recovery but not so strong as to hasten the end of policy stimulus.
The immediate outlook was clouded by a momentum-driven fall on Wall Street and a rise in the yen against the dollar, which knocked the Nikkei down 1.5 percent.
Australia also took a 0.4 percent dip >.AXJO> but other markets in the region were faring better and MSCI's broadest index of Asia-Pacific shares outside Japan was holding steady.
The euro had its own troubles as speculation of further easing from the European Central Bank pulled EU bond yields down to multi-year lows. Some Spanish yields even dropped below those in the United States for the first time since 2007.
Profit-taking on high-flying momentum stocks had hit the Nasdaq hard on Friday and dragged the Dow and S&P off historic highs. The Nasdaq shed 2.6 percent in its biggest daily loss since February, while the fell 0.96 percent and the S&P 500 1.25 percent.
Still, the fall was more a function of positioning than any weakness in the jobs report.
Nonfarm payrolls rose by 192,000, while upward revisions over the prior two months totalled 37,000. The unemployment rate was unchanged at 6.7 percent, while hours worked rebounded and another soft reading on wages was benign for inflation.
"The conclusion then is that employment conditions are pretty much the same as they have been last few years," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.
"This report should not move the dial in either direction for either the market or the Fed."
That was just fine for emerging markets which have been vulnerable to any hint the Fed might unwind its stimulus at a faster pace, and so attract foreign funds away.
Emerging market stocks ended Friday 0.2 percent firmer for a third straight week of gains.
Also relieved was the U.S. Treasury market where 10-year yields dived almost 9 basis points to 2.72 percent as prices rallied strongly.
The pullback undermined the U.S. dollar's advantage over the yen and pulled it back to 103.27 from Friday's 10-week peak at 104.13 yen.
ECB UNDER PRESSURE
The euro fared even worse after a German newspaper reported the ECB had modelled the impact of buying a trillion euros of assets to ward off deflation, a day after the ECB's president said radical policy action might be needed.
"No longer is it the case that the data need to weaken further; rather, with the latest inflation data already tracking below the staff's baseline projections, it will suffice that there is no 'catch-up' over the next few weeks," said James Ashley, chief European economist at RBCCM.
"In other words, if the data do not improve as expected, the ECB will act."
Just the chance of extra action has pushed bond yields down sharply across Europe, with Spanish five-year yields dropping below U.S. Treasuries for the first time since 2007.
That in turn undermined the euro, which was pinned at $1.3699 on Monday having carved out a five-week trough of $1.3671 on Friday. That helped nudge up the dollar against a basket of currencies to 80.443.
There is little in the way of major economic data in Asia on Monday, but the Bank of Japan has a policy meeting ending on Tuesday that will be closely watched for any hint that policymakers are considering adding to their already massive asset buying.
In commodity markets, gold was holding at $1,302.64 an ounce after bouncing 1.2 percent on Friday.
Oil prices eased after Libyan rebels occupying four eastern oil ports agreed with the government on Sunday to gradually end their eight-month petroleum blockade.
Brent crude was quoted 55 cents lower at $106.17 a barrel on Monday, while U.S. crude eased 14 cents to $101.00 a barrel.
Markets in China are closed for a public holiday. (Editing by Eric Meijer)