Asia stocks step back on tepid Wall Street, oil elevated

By Shinichi Saoshiro

TOKYO (Reuters) - Asia stocks pulled back on Tuesday, after an uninspiring performance on Wall Street eclipsed support from U.S.-China trade optimism, while supply concerns kept crude oil prices near 3-1/2-year highs.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.16 percent after rising 0.6 percent the previous day to its highest since late March.

Australian stocks <.AXJO> inched up 0.05 percent, South Korea's KOSPI shed 0.05 percent and Japan's Nikkei <.N225> was flat.

Wall Street scraped out gains on Monday after weakness in defensive stocks offset optimism following U.S. President Donald Trump's conciliatory remarks toward China's ZTE Corp that helped calm U.S.-China trade tensions. [.N]

Investors in Chinese equities will likely rejig their exposure after MSCI, the U.S. index publisher, published its latest index weighting.

MSCI said on Tuesday that 234 Chinese large caps will be partially included in its global and regional indexes on June 1, following an index review ahead of China's inclusion in MSCI's widely tracked equity benchmarks.

Brent crude added 0.2 percent to $78.38 a barrel and in close reach of $78.53, the 3-1/2-year high marked on Monday. U.S. crude oil futures advanced 0.15 percent to $71.07 a barrel and in reach of $71.89, the highest since November 2014 scaled on Thursday.

Oil prices received their latest lift as OPEC reported that the global oil glut has been virtually eliminated. Tensions in the Middle East and uncertainty about output from Iran amid renewed U.S. sanctions have contributed to the recent rise in oil prices. [O/R]

"The recent rise in prices of crude oil won't have a broadly negative impact on equity markets if it continues at the current pace," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

"The rise in oil prices is boding well for certain stock sectors like energy shares."

In currencies, the dollar index against a basket of six major currencies nudged up 0.1 percent to 92.661 .

The greenback took a knock against the euro earlier on Monday after European Central Bank policymaker Francois Villeroy de Galhau said the ECB could give fresh timing guidance of its first rate hike as the end of its exceptional bond purchases approaches.

The U.S. currency managed to bounce back, however, after Cleveland Federal Reserve President Loretta Mester reiterated support for gradual interest rate increases.

The euro stood little changed at $1.1930 after pulling back sharply from the previous day's high of $1.1996.

The dollar was a shade higher at 109.755 yen , adding to the previous day's gains.

The currency drew support as U.S. Treasury yields rose amid the easing of U.S.-China trade tensions. [US/]

The 10-year Treasury note yield was at 2.998 percent after rising about 2.5 basis points overnight.

(Reporting by Shinichi Saoshiro; Editing by Shri Navaratnam)