* Euro edges away from 4-month low vs dollar
* European shares rebound as Cyprus tensions ease
* Wall Street expected to open higher
* Assets generally lacklustre ahead of Easter weekend
By Marc Jones
LONDON, March 28 (Reuters) - European shares rebounded and the euro edged off a four-month low on Thursday after banks in Cyprus reopened to relative calm following the island’s hard-won bailout.
There was no sign of the mass panic that Cypriots and investors had feared might be triggered when banks reopened after a forced closure of almost two weeks, albeit with tight controls to prevent depositors from cleaning out their accounts.
Cyprus’s 10 billion euro rescue deal with its European partners at the weekend is the first euro zone bailout to impose losses on bank savers.
Data from the European Central Bank showed that some had already begun to bleed their accounts in February when the possibility of a grab on deposits first emerged.
But the calm as bank staff returned to work helped settle early market jitters, amplified by an unexpected rise in German unemployment, political turmoil in Italy and end-of-quarter caution as traders worked to get their accounts in order.
The euro, which has dropped around 2 percent over the last couple of weeks, climbed back above $1.28 by 1230 GMT, easing away from a four-month low against the dollar and a one-month low against the yen
European stock markets also shrugged off early nerves.
With benchmark indexes in London, Frankfurt and Paris all higher, the FTSEurofirst 300 climbed 0.7 percent and looked on course to narrowly avoid a second successive week of losses.
The rise in German unemployment was too small to spark worries that its economy will falter and was offset by stronger retail sales. There was also a surprise rebound in Italian business confidence.
German government bonds, an asset that investors turn to in times of increased tension and one which has jumped during the turmoil in Cyprus, reversed early gains as the mood improved to stand three ticks lower on the day at 145.48.
But festering worries that Cyprus’s grab on deposits could be repeated elsewhere kept bonds issued by Italy and Spain - the two countries viewed as most vulnerable to contagion - in negative territory.
“Anything is up for grabs now because the whole rescue template has changed,” said Philip Tyson, strategist at ICAP in London.
As Europe headed towards a four-day Easter weekend, traders looked back on another quarter of gains for riskier assets such as equities and higher-yielding bonds from the euro zone’s southern fringe.
Despite the recent Cyprus-related blip, European shares are heading for a record tenth straight month of gains and a year-to-date rise of almost five percent.
In Asian trading, Japan’s Nikkei and other indexes in the region clocked up another positive quarter while closing lower in their final session before Easter.
Stock futures pointed to another higher open on Wall Street. The Dow Jones industrial and S&P 500 indexes are looking to build on a month of record, or near record highs, but analysts think the run may be due a pause as political turbulence returns to Europe and growth slows.
A 42 percent jump in the cost of using Credit Default Swaps to insure against defaults by European banks over the last two weeks suggests there has been a shift among investors in Europe.
“I think the worse-than-expected sequestration in the U.S., the Italian elections and this surprise in Cyprus are the kind of combination that was required to slow things down a bit,” said Dan Morris, global market strategist at JP Morgan.
“Some of the fundamentals are still there in terms of liquidity both from central banks and from fund flows but we have to keep in mind is that earnings growth hasn’t been fantastic... You do need GDP to pick up and that is probably not going to be the case until the end of the year.”
Commodities staged one of their broadest rallies of the year on Wednesday with oil, metals and agricultural futures all rising but they were mixed again as trading began to pick up.
Safe-haven favourite gold was managing to hold above $1,600 an ounce, while oil was slightly up on the day as it held near $110 a barrel as U.S. demand growth hopes helped offset the worries surrounding Europe.
Those jitters and lacklustre Chinese buying pegged back copper to $7594.25 a tonne, however, as metal traders wondered whether the seasonally strongest second quarter will bring the expected uplift in demand.
Optimism many economists had of a recovery in the euro zone at the start of the year has proven unfounded but has also been largely offset by signs of improving U.S. growth.
“We are in the peak seasonal demand time of the year - March and April - fundamentally this is about as good as we’re going to get,” said Credit Suisse analyst Ivan Szpakowski.
“It’s not a recipe for a great rally, but it’s modestly positive ... Still as we progress through the remainder of the year, we think that activity and demand is going to slow,” Szpakowski said.