* Asia share index recoups losses, regional markets turn mixed
* Yen, safe-haven bonds keep mild bid on Portuguese bank troubles
* Mood cautious as U.S. earnings season gets under way
By Wayne Cole
SYDNEY, July 11 (Reuters) - Asian shares recouped early losses on Friday as sentiment in the region proved resilient to Portuguese bank concerns amid signs offshore funds were returning to emerging world assets.
MSCI’s broadest index of Asia-Pacific shares outside Japan recovered to be a fraction firmer. Indices in Australia, Singapore and China were all higher, while Japan’s Nikkei pared its losses to be off just 0.26 percent.
The yen also surrendered some of its safe-haven gains as analysts emphasised that the woes of one Portuguese bank were no threat to the country’s sovereign rating.
Rather the news served as an excuse to book profits on what has been a long rally in European stocks and bonds.
Indeed, there were signs investors were taking money out of peripheral euro zone debt and seeking higher returns in the emerging world. It was notable that MSCI’s index of emerging market stocks actually rose on Thursday having hit a 17-month peak earlier in the week.
European stocks had been buffeted overnight as trading in Banco Espirito Santo was halted after a 19 percent drop. The bank’s largest shareholder suspended trading in its own shares and bonds due to “material difficulties” at its own largest shareholder.
Late Thursday night, the bank said losses on loans to the troubled business empire of its founding family will not put it at risk of running short of capital.
The damage was amplified by data showing unsettlingly weak readings for May industrial production in France and Italy. These followed equally disappointing numbers from Germany and the UK, which has led many analysts to cut their estimates of economic growth for the second quarter.
Portugal’s market had fallen 4.2 percent and Italy’s FTSE MIB 1.9 percent on Thursday.
While the fate of a relatively minor bank in Europe would not normally have had much effect on Wall Street, it was enough to make investors reconsider the market’s high valuations as the earnings season gets into full swing.
The S&P 500 index fell 0.41 percent, while the Dow eased 0.42 percent and the Nasdaq 0.52 percent.
The S&P 500 financial sector index fell 0.5 percent and Wells Fargo & Co, which reports earnings later Friday, lost 0.7 percent.
With stocks off the boil, Treasuries picked up the usual safe-haven bid for shorter-term debt which is prized for its deep liquidity. Yields on two-year notes fell over 4 basis points to 0.4561 percent, a marked reversal from a high of 0.5360 percent hit just on Wednesday.
German debt played much the same role in Europe, where yields on 10-year bunds ended at a 14-month trough of 1.20 percent. Bonds in the euro zone periphery were not so lucky, with yields on Portuguese, Spanish and Italian bonds all rising sharply.
The itch for safety benefited the Japanese yen which climbed a full yen to 137.76 per euro. The dollar initially dropped as far as 101.04 yen but then slowly made it way back to 101.30.
The higher-yielding Australian and New Zealand dollars also remained well supported, suggesting there was no widespread retreat from risky assets.
In commodities, gold was up at $1,337.95 having touched a 3-1/2-month top of $1,345.00.
Oil prices steadied after a run of losses. Brent was up 6 cents at $108.73 a barrel, while U.S. crude eased 5 cents to $102.88.
Tensions in the Middle East also continued to simmer with Israeli officials seeming to hint at a possible assault on Gaza by ground forces. (Editing by Eric Meijer and Jacqueline Wong)