* MSCI Asia ex-Japan down after recent rally
* Nikkei highest since Jan 2008 as yen hits 4-yr low vs dlr
* Japan investors buying foreign bonds last two weeks
* U.S. attracting funds on brightening growth prospects
* European shares seen inching higher
By Chikako Mogi
TOKYO, May 10 Japanese equities soared to 5-1/2-year highs on Friday, with the dollar sailing past the symbolic 100 yen level and beefing up the outlook for Corporate Japan, but shares elsewhere in Asia retreated as global equities paused overnight from recent rallies.
European stock markets will likely inch higher after the pan-European FTSEurofirst closed flat overnight to stay near five-year highs. Financial spreadbetters predicted London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open up as much as 0.2 percent.
U.S. stock futures were up 0.1 percent, suggesting a slightly firmer Wall Street open after U.S. stocks slipped from record highs on Thursday.
The U.S. currency was buoyed after Thursday's weekly U.S. data showed initial jobless claims fell to the lowest level in more than five years, following last week's much stronger-than-expected monthly nonfarm payrolls report for April.
"What you need to understand about what is going on in the United States is that we're growing, this recovery is real. There may be some bumps, but the fundamental push forward is there," said Carl Larry, president of the Houston-based Oil Outlook and Opinions.
The yen's resumed downtrend bodes well for Japanese exporters and expectations of robust earnings drove the Nikkei stock average up 3 percent to its highest since January 2008.
The index is up 6.4 percent, on track for its biggest weekly gain since December 2009 when it jumped 10.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.9 percent, after climbing to its highest since July 2011 on Thursday. For the week, the index is set for a gain of 0.8 percent.
A strong dollar dented appetite for safe-haven U.S. Treasuries, pushing the 10-year Treasury yield up to a 1-month high around 1.844 percent in Asia, while rallying Japanese stocks lifted 10-year Japanese government bond yields up 10 basis points to 0.690 percent, their highest since late February.
"It's global buying of the U.S., with more investors feeling comfortable buying the dollar. U.S. stocks are stabilising four years after the Lehman collapse. It's a good sign for markets when funds target the U.S., where investors are willing to take on risk," said Goro Ohwada, president and CEO at Japan-based fund of hedge funds Aino Investment Corp.
Signs of a steady U.S. recovery could heighten speculation over when the Federal Reserve will begin scaling back its aggressive quantitative easing to push up U.S. yields, attracting funds from lower-yielding countries such as Japan.
Capital flows data showed Japanese investors were net buyers of foreign bonds in the last two weeks, reversing their relentless net selling since late January. They repatriated a total of 9.33 trillion yen in January-April.
The dollar extended Thursday's gains to hit a fresh four-year high of 101.20 yen, having stalled for a month after reaching a high of 99.95 yen in early April. The euro rose to 131.91 yen, its highest since January 2010.
"The market is returning to where it should be, to buying the dollar. Failed attempts to break the 100 yen had lightened positions and cleared the way for such a move," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
Maeba added that the dollar may see a near-term correction to the downside, but the 99 yen level will now signal a buying opportunity and markets may test 102-103 yen in coming weeks.
The currency moves had diverging impacts on Asian shares.
Australian shares erased most of their early gains after hitting a fresh five-year high earlier, as strong gains in the banking sector and companies with a strong exposure to the U.S. market rallied on the back of the dollar's gain against the yen.
The Australian dollar hit a 10-month low of $1.0046 overnight.
But the yen's decline hurt South Korean shares, which slid 1.6 percent on concerns that a weaker yen would curb exporters competitiveness against their Japanese counterparts, although the dollar's rise pushed the South Korean won sharply down to a one-week low.
Chinese shares were subdued, with growth-sensitive sectors outperforming despite China's patchy economic recovery. Hong Kong shares fell 0.2 percent while Shanghai inched up 0.1 percent.
A firm dollar capped prices of dollar-based commodities.
London copper eased 0.4 percent to $7,321.75 a tonne while gold futures lost as much as 1.2 percent to a low of $1,451.6 an ounce.
Spot gold edged up 0.1 percent to $1,459.16 an ounce, but was on track for its first weekly fall in three weeks. The first increase since mid-March in SPDR Gold Trust's exchange-traded holdings offered a glimmer of hope for the metal.
"If you look at total gold holdings, not only SPDR, they are still coming down. I won't be so quick to say that sentiment is changing," said Joyce Liu, an investment analyst at Phillip Futures in Singapore.
U.S. crude futures fell 0.6 percent to $95.80 a barrel and Brent eased 0.5 percent to $103.95.
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