SYDNEY (REUTERS, BLOOMBERG) - Asian share markets crept cautiously higher early on Thursday (July 7) after upbeat US economic data took the sting out of losses in European equities and lifted Wall Street to a firmer finish.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.5 per cent, having shed 1 per cent on Wednesday when fears over European instability swept markets.

Australian stocks rose 0.7 per cent and South Korea put on 1.1 per cent.

Dealers cautioned that fresh Brexit concerns could flare up at any time, a risk reflected in the parlous state of sterling.

The pound dropped back toward the 31-year low reached Wednesday after four more UK property funds halted withdrawals, bringing the total to seven this week.

Sterling slumped the most among developed-market currencies for a third day on Thursday as investors rushed to dump real-estate holdings.

"There's still plenty more downside to come for sterling," said Ray Attrill, co-head of FX strategy at National Australia Bank in Sydney. "We're targeting US$1.20 next year, but the risk is that we get there much sooner than that."

The pound dropped 0.1 per cent to US$1.2913 as of 9:01 am in Tokyo from Wednesday, when it touched US$1.2798 for the first time since June 1985.

The yen rose for a third day as a traditional safe harbour, a major headache for the Bank of Japan (BOJ) as it crimps exports while suppressing much-needed inflation at home. It also kept Japanese shares on the defensive with the Nikkei flat in early trade.

The yen advanced 0.2 per cent to 101.14 per US dollar , and 0.3 per cent to 112.19 per euro. It reached 99.02 per dollar for the first time since November 2013 on June 24, in the immediate aftermath of the Brexit vote.

"The yen is gaining because it is the world's preeminent safe-haven currency, and dipping below 100 per dollar again is only a matter of time," said Joseph Capurso, a senior currency strategist in Sydney at Commonwealth Bank of Australia. "Our year-end forecast for the pound of US$1.26 looks like it will be met early. At the rate it's falling, it could be Friday afternoon." T

Still, it was notable that while bond markets have been signalling recession, equities had stayed fairly resilient.

"The most optimistic interpretation is that markets believe a limited regional shock is going to result in a significantly easier stance for global monetary policy," David Hensley, an economist at JPMorgan, said in a note. "At ground zero, the Bank of England has indicated it may soon cut rates. There is widespread speculation the BOJ and ECB will ease, a view we share."

More importantly, JPMorgan believes the Bank of England will revive its quantitative easing process while the UK government reverses course on austerity and loosens fiscal policy, which could be a green light to fiscal expansion globally.

Sentiment got a welcome lift from a survey showing activity in the giant US service sector hit a seven-month high in June as new orders surged and companies hired more.

That helped the Dow rise 0.44 per cent, while the S&P 500 gained 0.54 per cent and the Nasdaq 0.75 per cent.

Minutes from the US Federal Reserve's June policy meeting confirmed what was already suspected - that officials were concerned ahead of the Brexit vote, which subsequently erased $3 trillion from global equities over two days.

Markets have assumed the uncertainty caused by the vote, and the resulting rise in the US dollar, has made it very unlikely the Fed will be able to hike rates again this year.

Fed fund futures for December imply a rate of 38.5 basis points, almost exactly where the effective rate is now. Remarkably, the market is not fully priced for a hike until the start of 2019.

Treasuries have in turn enjoyed an historic rally that has taken yields to record lows right out to 30 years. The benchmark 10-year note was paying just 1.37 per cent, some way below the rate of US inflation.

Indeed, analysts estimate over US$10 trillion of government debt around the world offer only negative yields, a nightmare for fund managers and insurance companies who have committed to future pension payments at positive rates.

The focus now shifts to Friday's US jobs report, where another soft number could fuel speculation that the Fed might even have to ease policy this year.

Analysts are hoping for a solid rebound of 175,000 in June after May's shockingly small 38,000 increase.

In commodity markets, oil prices recouped some lost ground on the better US data and expectations for a sharp drop in crude stockpiles.

NYMEX crude futures were quoted 26 cents firmer at US$47.69 a barrel, while Brent added 27 cents to US$49.07.