Asia up after Wall Street sets record high, dollar on defensive

By Shinichi Saoshiro

TOKYO (Reuters) - Asian shares rose on Friday after Wall Street set another record high with prospects for a Federal Reserve rate hike in June all but quashed, while the dollar was on the defensive after downbeat U.S. data.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9 percent with South Korean, Australian and Hong Kong shares posting sizeable gains.

European shares are expected to firm slightly, with Germany's DAX, Britain's FTSE and France's CAC40 seen all rising about 0.1 percent.

The Shanghai Composite Index extended the previous day's rally driven by hopes of stimulus and gained 2.0 percent. It was on track for a six percent weekly gain having climbed to seven-year high.

Tokyo's Nikkei rose 0.2 percent to a 15-year high. Japanese stocks have been boosted this week by data showing stronger-than-expected first quarter growth. The Bank of Japan kept its policy as widely expected.

"There is little tension over the Bank of Japan policy meeting. Governor Kuroda and colleagues have sounded comfortable with the current policy stance and are likely to point to the slight upside surprise on Q1 GDP as further vindication," Sean Callow, senior currency strategist at Westpac in Sydney, wrote in a note.

The S&P inched up 0.2 percent to close at a new all-time high overnight, albeit amid below-average volume. U.S. equities have been relieved after seeing the April Fed policy meeting minutes released midweek showing that most officials were not inclined towards a June hike.

The U.S. economy has shown signs of strength but its recovery has not been as robust as expected.

Soft U.S. data released overnight - weaker-than-expected existing home sales, manufacturing sector and U.S. Mid-Atlantic business activity - appeared to vindicate the Fed officials' cautious policy stance.

U.S. Treasury yields fell in wake of the soft economic indicators, helping nudge the dollar away from recent highs.

The euro crept up 0.2 percent to $1.1140. It had hit a three-week low of $1.1062 earlier this week amid Greek debt concerns and was poised to lose 2.7 percent on the week.

The dollar also eased slightly to 120.79 yen after losing 0.3 percent overnight to end a five-day winning run. The greenback scaled a two-month peak of 121.49 midweek on bets the currency was ready for a run higher after weeks in the doldrums.

Sterling inched up 0.1 percent to $1.5671, on a bullish footing after rallying 0.8 percent the previous day on stronger-than-expected British retail sales.

In commodities, U.S. crude took a breather, inching down 0.2 percent to $60.60, after surging nearly 3 percent overnight on data that eased supply glut concerns and fighting in Iraq. Brent dipped 0.2 percent to $66.42 a barrel after rising 2.3 percent.

(Editing by Eric Meijer & Simon Cameron-Moore)