* Asian shares rally 2 pct after 3-day losing streak
* Rise seen temporary reprieve in otherwise weak market
* Nikkei weak, weighed down by drugs sector
* Dollar gives up gains, gold eases
* Oil prices extends gains on OPEC cut fears
(Repeats to more subscribers, updates throughout)
By Rafael Nam
HONG KONG, March 10 (Reuters) - Asian shares outside Japan
posted their best gains in a month on Tuesday while safe-haven
flight to the dollar eased, but the moves were seen as only a
momentary reprieve from a gloomy economic outlook.
European stock markets were expected to open slightly
lower, however, pressured by overnight losses on Wall Street
and disappointing reports on UK home prices and retail sales.
Asian share gains were led by banks, including heavyweight
HSBC <0005.HK>, which have taken a recent pounding globally on
concerns about capital raising, weakening profits and
persistent credit-related losses that are threatening the
stability of the world's financial system.
However, Japan's Nikkei average <> dipped to a new
26-year closing low for the second session in a row, hit by
worries about the global competitiveness of the country's drugs
sector following a $41 billion merger in the United States.
Oil extended gains to above $47 a barrel on expectations
for more OPEC output cuts and ahead of weekly U.S. stocks data
out later in the day expected to show a fall in crude
inventories.
"It is hard to think that stocks will turn to an upward
trend given the credit situation. The dollar is likely to
retain its safe-haven status," said Kazuyuki Kato, treasury
department manager at Mizuho Trust and Banking Co in Japan.
"But since gains in the dollar have progressed to a
considerable degree, the currency will face its peak at some
level," he said.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> rose 2.1 percent by 0715 GMT, more than
recouping its 1.7 percent fall over the previous three
sessions.
The index was headed for its biggest daily percentage gain
since a 2.5 percent advance on Feb. 13.
But confidence in policymakers' efforts to revive global
economic growth will be key to a sustained rebound in global
equities, analysts said.
Top U.S. officials on Monday urged other countries to step
up spending to combat recession but Europe dismissed the call,
exposing a rift before a summit this weekend by finance
ministers from the world's largest rich and developing
economies.
"We're doing more in weeks than other countries do in
years," U.S. Treasury Secretary Timothy Geithner told Reuters
after briefing U.S. lawmakers on the administration's economic
stimulus and financial stability programs. []
Central bankers are also cutting interest rates, which are
already near zero in Japan and the United States.
China's central bank may have ample scope to ease monetary
policy after data on Tuesday showed the country last month fell
into deflation at the consumer level for the first time since
December 2002. []
SOME LESS PESSIMISTIC
The rise in Asian shares was led by a 3 percent gain in
Hong Kong stocks <>, while South Korea <> and China
<> markets rose nearly 2 percent each.
Indexes in Australia <>, Taiwan <> and Singapore
<> gained nearly 1 percent each.
HSBC <HSBA.L> jumped 14 percent in Hong Kong after news of
its upcoming rights issue had led shares in the lender to slump
on Monday to its lowest since 1995.
Banking shares elsewhere also advanced, with South Korea's
Woori Finance Holdings <053000.KS> surging 15 percent.
"Some people are starting to realise that some things are
just too good a value to pass up," said Michael Heffernan,
senior client adviser and strategist at Austock Group,
referring to the rally in banking shares that were also seen in
Australia.
But among Tuesday's decliners, the Nikkei <> slid 0.4
percent, weighed down by drugmakers such as Astellas Pharma
<4503.T>.
The losses were sparked by worries the Japanese drugs
sector will be less competitive in the global market place
after U.S.-based Merck <MRK.N> proposed to take over
Schering-Plough <SGP.N> for $41 billion. []
The dollar fell 0.8 percent to 88.533 <.DXY> against a
basket of currencies <.DXY>, as repatriation flows into the
greenback slowed and speculators trimmed bets it will rise
further.
The euro advanced 0.8 percent to $1.2710 <EUR=>, rebounding
above a three-month low of $1.2457 hit last week. The euro rose
0.6 percent against sterling to 91.98 pence.
The pound managed to recover from a six-week low against
the dollar to rise 0.3 percent on the day to $1.3824 <GBP=D4>.
However, the yen continued to suffer on worries about the
world's second-largest economy, after data on Monday showed it
posted its first current account deficit in 13 years in
January.
Concerns over supply sent June Japanese government bond
futures -- the new lead contract -- down 0.06 point to 138.60
<2JGBv1>. The benchmark 10-year yield inched up 0.5 basis point
to 1.300 percent <JP10YTN=JBTC>, near a three-week high of
1.310 percent struck last week.
In commodity markets, oil prices <CLc1> rose 56 cents to
$47.63 a barrel on expectations that weekly U.S. inventory data
due later in the day would show another fall in crude stocks.
Gold <XAU=> dipped about $6 to $914.10 an ounce, retreating
further from an 11-month high above $1,000 marked on Feb. 11.
