GLOBAL MARKETS-Asian shares retreat, dollar gains respite

                                
 * Bank of Japan says positive business cycle is beginning
                                
 * Asian stocks retreat from 13-month highs
                                
 * Investor caution takes pressure off the dollar
                                
 * European and U.S. equities set to start lower
                                
 By Susan Fenton
                                
 HONG KONG, Sept 18 (Reuters) - Asian stocks retreated from
13-month highs on Friday as a conflicting picture about the
strength of U.S. economic recovery stopped investors from
extending this week's rally but gave some respite to a battered
U.S. dollar.
                                
 European stocks futures <STXEc1> were down 0.4 percent
while U.S. equity futures <SPc1> were 0.3 percent lower,
pointing to a weak start for shares in Europe and the United
States.
                                
 Investors in Japan were cautious ahead of a stretch of
public holidays early next week even though the Bank of Japan
deputy governor, Hirohide Yamaguchi, said a positive business
cycle was starting and signalled the central bank could soon
withdraw emergency support for corporate funding. [ID:nT109247]
                                
 "A pickup in the global economy is expected to continue for
some time," Yamaguchi told a forum in Tokyo.
                                
 The Nikkei index <.N225> fell 0.7 percent, breaking a
three-day rally.
                                
 Shares in Shanghai <.SSEC> were down 1.7 percent by early
afternoon as investors fretted about the prospect of a sharp
rise in shares from upcoming IPOs and worried that recent gains
may be overdone.
                                
 Stock market jitters took pressure off the dollar, which
held above one-year lows reached on Thursday against a basket
of currencies <.DXY>, although analysts said its respite could
be temporary.
                                
 "We are seeing a bit of a pullback but the broader U.S.
dollar weakness remains intact as it turns to be the currency
for carry trades," said Jonathan Cavenagh, currency strategist
at Westpac in Australia.
                                
 OPTIMISM TEMPERED
                                
 Investors across Asia stood back after equities hit their
highest level in 13 months on Thursday. While there is growing
confidence the global economy is on an uptrend there is
uncertainty about the strength of that recovery.
                                
 Data on Thursday showed U.S. housing starts hit their
highest level last month since November, but a rise in the
number of Americans drawing long-term unemployment compensation
tempered optimism for a sharp rebound in the world's biggest
economy.
                                
 The MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> dipped 0.6 percent, after surging 80 percent
since mid-March when markets started to rally on investors'
hopes that the financial crisis had bottomed out.
                                
 Shares in Korea bucked the region as the KOSPI index
<.KS11> eked out a 0.3 percent gain, helped by foreign
investors picking up shares before global index compiler FTSE
promotes South Korea's share market to developed market status,
from advanced emerging market, from Monday.
                                
 Japanese government bond futures rebounded in early trade
as Tokyo stocks fell, but December 10-year JGB futures <2JGBv1>
were virtually flat by late afternoon at 138.55.
                                
 Finance Minister Hirohisa Fujii said the government could
cut new JGB issuance this fiscal year when the new government
reviews an extra budget compiled by the previous government,
but gave no details. [ID:nT112846]
                                
 Gold <XAU=> edged up to $1,012.20 an ounce from its New
York close at $1,011.45, but below an 18-month high of
$1,023.85 on Thursday.
                                
 Seen as a hedge against potential inflation, gold is likely
to stay firm and many market participants still expect it to
break through its record high of $1,030.80.
                                
 Otherwise, commodity <.CRB> prices slipped on uncertainty
about the strength of the global economic recovery and the oil
price <CLc1> edged down 34 cents to $72.13 a barrel.
                                
 Weaker commodity markets put pressure on shares of
Australian resources companies, such as mining giant BHP
Billiton <BHP.AX> which fell 2.3 percent, and helped push the
Aussie dollar <AUD=> below Thursday's one-year high.
                                
 But shares in Qantas Airways <QAN.AX> jumped 3.7 percent
after positive comments on the carrier from broker RBS.
                                
 Qantas was also reported to be teaming up with American
Airlines and British Airways <BAY.L> to expand an alliance with
cash-strapped Japan Airlines <9205.T>, whose shares rose 2.4
percent.
 (Additional reporting by Anirban Nag in Sydney and Leika
Kihara in Tokyo; Editing by Jan Dahinten)