(corrects milestone of dollar/yen to seven-week high, not six week high)
* Global bond yields near previous peaks
* ECB rate hike talks lift euro, bond yields
* Oil prices hit 3 1/2-month lows
By Hideyuki Sano
TOKYO, March 13 (Reuters) - Asian shares started the week on a cautious note on Monday as strong U.S. jobs data cemented expectations of a hike in U.S. interest rates this week and as oil prices plunged to 3 1/2-month lows on fresh worries of oversupply.
MSCI's broadest index of Asia-Pacific shares outside Japan was flat, with a fall in resource-heavy Australian shares offset by a rise in tech-heavy South Korean shares. Japan's Nikkei inched lower, with the mood also soured by an unexpected drop in machinery orders, which highlighted the fragility of the country's economic recovery.
Global stocks rose on Friday, with the MSCI's index of 46 markets gaining 0.5 percent, snapping six straight days of losses after the robust U.S. jobs report.
Yet while the data all but sealed a rate increase by the Federal Reserve on Wednesday, the market's focus now shifting to the pace of rate hikes beyond March.
"The markets are focusing on when the Fed will raise rates next time or the pace of its rate hike, so the tone of Fed Chair Janet Yellen will be closely watched," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
U.S. interest rate futures are pricing in about a 50 percent chance of another rate hike in June. By the end of 2017, a total of nearly three hikes were fully priced in, including the likely move in March.
In Reuters poll of primary dealers, twelve of the 23 dealers saw a rate increase to 1.00-1.25 percent by the June 13-14 meeting, while 10 expected such a move by the Fed's September meeting.
The 10-year U.S. Treasuries yield slipped a tad on Friday partly as markets had already expected strong payroll figures.
Still, it last stood at 2.584 percent, not far from its two-year high of 2.641 percent touched on Dec 15.
U.S. junk bonds have also faltered, with high-yield bond ETF posting its biggest weekly loss in more than a year.
Global bond prices came under pressure also following a report that some European Central Bank policymakers had discussed the possibility of rate hikes before the end of its quantitative easing programme.
The 10-year German Bund yield rose to 0.496 percent on Friday, near its one-year high of 0.498 percent hit in January.
A break of those previous peaks in major bond yields could spark a fresh sell-off in global bond markets.
The talk of ECB rate hike, even though it is still seen as a remote possibility, helped to lift the euro.
The single currency traded at $1.0690, after hitting a one-month high of $1.06995 on Friday.
The dollar slipped to 114.85 yen from Friday's seven-week high of 115.51 yen after U.S. Commerce Secretary Wilbur Ross said on Friday that Japan will be on high on the U.S. priority list for trade agreements.
Traders suspect Washington, keen to reduce its trade deficit, may put pressure on Japan not to cheapen the yen in upcoming bilateral economic talks.
Oil skidded to 3 1/2-month lows after posting biggest three-day loss in a year by Friday as investors continued to flee bullish positions on worries that OPEC-led production cuts have not yet reduced a global glut of crude.
U.S. crude futures dropped 1 percent to $47.96 per barrel , having shed more than 11 percent so far this month. (Editing by Kim Coghill)