Asia edges higher after China rate cut, euro slips

TOKYO (Reuters) - Asian stocks edged higher on Monday as China's weekend interest rate cut partially offset soft U.S. data, while the dollar hit a five-week high against the euro.

China on Saturday stepped up its easing tempo and cut its lending and deposit rates as the world's second largest economy tries to ward off deflation.

Australian shares posted some of the biggest gains in Asia following the China rate cut, gaining 0.8 percent <.AXJO> after touching a seven-year peak as resource shares surged.

But the impact from the weekend easing only had a limited effect on the region's overall markets.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.1 percent. Tokyo's Nikkei <.N225> crawled up 0.3 percent and Chinese and South Korean stocks also posted comparable modest gains.

"In some senses this rate cut is a technical response to the fact that lower inflation is making real borrowing costs more expensive in China," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Equity markets were also cautious after revised data on Friday showed U.S. gross domestic product expanded at a slower pace in the fourth quarter than initially thought, and the University of Michigan's final February reading on U.S. consumer sentiment slipped from an 11-year high but topped expectations.

The Aussie climbed to $0.7850 early in the session before impact from the China rate cut faded and was last trading at $0.7771, down 0.5 percent.

The U.S. dollar was up 0.1 percent at 119.87 yen after rising to a three-week high of 119.955. It gained about 0.6 percent last week when upbeat U.S. data helped revive prospects of an early interest rate increase by the Federal Reserve.

The euro hovered near a five-week low of $1.1160.

In addition to the all-important U.S. non-farm payrolls data on Friday, the key focus this week will be the European Central Bank (ECB) meeting on Thursday. Investors keenly await further details on its 1 trillion euro ($1.1 trillion) government bond-buying program, which begins this month.

China's yuan fell to its lowest level against the dollar since October 2012 after the country's central bank cut rates. [CNY/]

U.S. crude fell 37 cents to $49.39 a barrel after Friday's $1.59 surge petered out. Last month, U.S. crude posted the first monthly gain since June thanks to an improving demand outlook and supply outages. [O/R]

Three-month copper on the London Metal Exchange hovered within distance of a two-month high of $5,944 a tonne struck last week as China's rate cut fed hopes of increased demand from the metal's top user. [MET/L]

(Editing by Shri Navaratnam and Eric Meijer)

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