* China vows yuan flexibility though no big one-off move seen
* Spot yuan rises to 21-month high, but fixing flat from Fri
* Beijing's pledge draws investors to riskier assets
* MSCI Asia ex-Japan stock index jumps 2 pct to 5-wk high
* Greater China buying power is dominant theme
By Kevin Plumberg
HONG KONG, June 21 (Reuters) - Asian currencies and stocks rose and U.S. Treasuries fell on Monday on expectations that China will soon unleash the yuan from its currency peg, easing political tensions with the West and encouraging investors to snap up riskier assets.
The spot yuan rate <CNY=CFXS> rose to a 21-month high of 6.8154 against the dollar by late morning, up 0.16 percent from Friday, after China's central bank pledged at the weekend to increase exchange rate flexibility.
Many economists see the currency strengthening further in coming days, albeit at a very modest pace. [
]"It's going to be a softly-softly approach in our view. It is good for risk appetite, it is good for Asian currencies in general," said Mitul Kotecha, head of global foreign exchange strategy with Credit Agricole CIB in Hong Kong.
Greater purchasing power for China resulting from a stronger currency was a dominant theme. Oil, copper and other commodity prices rose and currencies from economies that have a relatively large share of exports to China -- Australia, Taiwan, South Korea, Brazil -- were expected to keep strengthening.
China's central bank said late on Saturday it was ready to make the yuan more flexible, signalling it was ready to scrap its 23-month-old currency peg, citing a global economic recovery and more balanced external trade.
But on Sunday it ruled out a one-off move, said there was no basis for any big appreciation and added it will keep the exchange rate at a basically stable level. [
]Nevertheless, the apparent policy change in Beijing triggered a rally in riskier assets, with investors growing more confident about China's key part in the global economy, despite Europe's festering sovereign debt crisis.
Japan's Nikkei share average <
> jumped 1.8 percent to a one-month high, with China-linked stocks performing particularly well. Shares of Hitachi Construction <6305.T> and Komatsu <6301.T> rose 5.8 percent and 3.9 percent, respectively.Both companies assemble and sell their products in China.
The rise in the Nikkei was welcome news after government data showed foreign investors had sold $10 billion of Japanese stocks two weeks ago, the largest weekly outflow since March 2008.
"We may well be able to say that the heavy foreign selling of two weeks ago has now come to an end," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> was up 2.5 percent, led by the materials and industrial sectors.
Hong Kong's stock market <
>, the gateway to China for most global equity investors, also jumped 2.5 percent while Shanghai < > rose 1 percent.Initial gains slipped at one point after China's central bank left the yuan's daily mid-point unchanged from Friday, but markets soon recovered as the currency rose in the spot market.
CHINA'S BUYING POWER
The MSCI index has already retraced more than half the losses incurred in the past two months resulting from concerns about Europe's deb crisis, though is still down 3.2 percent this year.
Emerging Asian currencies rose sharply.
Reasons for strength were two-fold: Asian reserve managers would not have to curb their own currency strength as much for competitive reasons if China lets the yuan rise, and increased Chinese imports would presumably help their terms of trade.
The U.S. dollar dropped 1.9 percent against the Korean won <KRW=> in early trade, and was down more than 1 percent against both the Indian rupee <INR=> and Malaysian ringgit <MYR=>.
The euro and Australian dollar traded lower on the day, surendering early gains after China left the yuan mid-point steady.
The euro slipped 0.3 percent to $1.2400 <EUR=> and the Australian dollar was down 0.5 percent to US$0.8774 <AUD=>.
U.S. Treasuries fell as cash was moved to riskier plays offering potentially higher returns. The benchmark yield on the 10-year note was up 5 basis points from late Friday in New York to 3.27 percent <US10YT=RR>.
Commodities prices rallied as well on expectations that China's huge demand for raw materials would only increase.
Brent crude futures were up 1.4 percent to $79.30 a barrel <LCOc1> and U.S. crude was up 1.2 percent to $78.10 a barrel <CLc1>, both at the higest in a month.
Three-month copper on the London Metal Exchange <CMCU3> rose 1.3 percent or $81 a tonne to $6,516.
U.S. soybeans and grains futures also rose. [
] (Additional reporting by Elaine Lies in TOKYO)