Asia shares rise as China steps up support for economy

TOKYO (Reuters) - Asian shares rose on Monday as investors cheered China's latest cut to interest rates to bolster its flagging economy and as Wall Street rallied after a robust headline reading for US employment.

China cut interest rates for the third time in six months on Sunday, and analysts predicted policymakers would relax reserve requirements and cut rates again in the coming months.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent in early trade, moving away from a one-month low touched on Friday. Japan's Nikkei share average added 1.3 per cent.

The People's Bank of China cut its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from Monday, and its benchmark deposit rate by the same amount to 2.25 per cent.

"In light of the recent economic slowdown and rising disinflationary pressures, further policy easing including reserve ratio and rate cuts will still be warranted in the coming months," strategists at HSBC wrote in a note to clients.

The easing followed Chinese inflation figures on Saturday that added to concerns about deflationary pressures.

On Friday, all three major US stock indexes posted gains of over 1 per cent, after US Labor Department data showed non-farm payrolls increased 223,000 last month, while the unemployment rate dropped to a near seven-year low of 5.4 per cent.

The April jobs figures put the Fed on track for a rate increase as early as September, a Reuters poll showed.

But US. short-term interest-rate futures implied traders don't expect a Fed rate hike until December at the earliest, based on CME FedWatch, as some people focused on the fact that the previous month's figures were revised to show a gain of 85,000 jobs instead of the 126,000 previously reported.

The mixed report helped lift US Treasury yields. The yield on the benchmark 10-year note stood at 2.14 per cent in early Asian trade, compared to its US close of 2.15 per cent on Friday.

The higher yields gave some support to the US dollar, which began the week in its recent ranges. It shed about 0.1 per cent against the yen to 119.75, while the euro sagged about 0.1 per cent to US$1.1200.

The euro was under pressure after German Chancellor Angela Merkel's conservatives suffered an election defeat. The Eurosceptic Alternative for Germany (AfD) party was set to win seats in a fifth straight regional parliament on Sunday after an election in the city-state of Bremen.

Ongoing concerns about Greece's financial woes as well as disappointing German trade data also undermined the euro.

Later on Monday, the Eurogroup of euro zone finance ministers will meet, and Greece's government was hopeful that they will not progress on Athens' talk with lenders. The ministers have ruled out unlocking aid for Greece at the meeting, saying that too many issues with the debt-laden country remain unresolved.

The pound edged down about 0.1 per cent to US$1.5443, after it notched a 10-week high of US$1.5523 on Friday against the greenback, after a surprise election victory by Conservatives.

Newly re-elected British Prime Minister David Cameron on Sunday ruled out giving Scotland another independence referendum despite gains by Scottish nationalists in a UK-wide election.

Oil got off to a weak start, with Brent slightly down on the day at US$65.38 a barrel after it posted its first weekly loss in a month on Friday as the market fretted again about global oversupply. US crude was down about 0.2 per cent at US$59.30 after rising for an eighth straight week following the US jobs report.