GLOBAL MARKETS-Asian shares rise, still cautious on U.S. shutdown

Reuters

* Asian shares turn higher, helped by China services PMI

* China's CSI300 up 0.9 pct, Nikkei gains 0.3 pct

* Dollar bounces off near 8-month low vs basket ofcurrencies

* European bourses seen opening weaker

By Dominic Lau

TOKYO, Oct 8 (Reuters) - Asian shares rose on Tuesday asdata showed China's services industry continued to expand,soothing to some extent nerves jarred by fears of a U.S. debtdefault as the U.S. government shutdown entered a second week.

MSCI's broadest index of Asia-Pacific shares outside Japan reversed early losses to trade up 0.4 percent,while China's CSI300 index climbed 0.9 percent on itsfirst trading day in a week after the National Day holidays.

The lift in short-term sentiment after the SeptemberMarkit/HSBC services PMI, although the indeximproved at a slower pace than in the previous month, alsohelped the dollar to come off near an eight-month low against abasket of currencies.

A few glimmers of hope surfaced in Washington on Monday inthe U.S. fiscal standoff, with President Barack Obama saying hewould accept a short-term increase in the country's borrowingauthority in order to avoid a crisis.

But nothing amounting to a breakthrough was in sight aheadof the Oct. 17 deadline to raise the debt ceiling, which couldresult in a U.S. debt default if not resolved.

This anxiety helped support gold, while concerns that thepolitical wrangling in Washington will crimp economic growthkept pressure on oil prices.

Financial bookmakers expected major European indexes to open down between 0.3 and 0.5 percent.

"Investors have been reluctant to embrace aggressiverisk-off trades because they foresee a relief rally once a dealis made, i.e. when it's clear there won't be a default,"analysts at Societe Generale wrote in a note.

"The risk, however, is that we get a toxic deal, one way orthe other: the deal could simply raise the debt ceiling a bit,forcing further negotiations ... This would cause policyuncertainty and hurt the economy. Or the deal may include afurther tightening of fiscal policy."

China and Japan, the United States's biggest creditors, areincreasingly worried the shutdown and standoff over the debtceiling could wreak havoc on their holdings of trillions ofdollars in U.S. Treasury bonds.

U.S. Standard & Poor's 500 e-mini futures dipped 0.1percent in Asian trade after the cash index ended down0.9 percent on Monday and dropped for the 10th time in the past13 sessions. U.S. Treasury futures added 2-1/2 ticks.

Tokyo's Nikkei share average advanced 0.3 percentafter earlier hitting a five-week low, though its volatilitygauge added 0.5 percent as an indication that investorswere not totally off their guard over the U.S. fiscal situation.

WARY DOLLAR

The dollar added 0.1 percent to 80.051 against abasket of currencies after slipping 0.2 percent overnight to notfar from an eight-month trough touched last week.

Against the yen, the greenback was up 0.4 percent at 97.09yen after falling as much as 0.2 percent to 96.55 yen,hitting an eight-week low earlier in the Asian session.

It dropped 0.8 percent overnight to mark its biggest declineagainst the Japanese currency since Sept. 18, when the FederalReserve shocked investors by deciding to continue its stimulusprogramme.

"In the shorter-term, with financial sector stressincreasingly looking like a necessary ingredient to forcing anegotiated solution in Washington, we think risks lie to the yenupside," analysts at BNP Paribas wrote in a note, though theyremained optimistic that the U.S. fiscal crisis will beresolved.

Gold, seen as a safe-haven, gained 0.3 percent toaround $1,324.5 an ounce, adding to Monday's 0.8 percent rise,while Brent crude slipped 0.2 percent to $109.4 abarrel.

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