GLOBAL MARKETS-Asian shares hit speed bump, China extends sharp rally

* Asian shares step back after hitting 4 1/2-month high
* China shares extend rally as investors count on policy
support
* Yuan hit highest levels in almost 4 months
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Hideyuki Sano and John McCrank
TOKYO/NEW YORK, July 7 (Reuters) - Asian shares paused for
breath on Tuesday following a surge sparked by speculation
Beijing is trying to orchestrate a major domestic bull run to
support an economy hit by the coronavirus and a standoff with
Washington.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was last down 0.25%, a seemingly inevitable
correction after sharp gains of 7% in just five days that took
it to a 4-1/2-month high.
Japan's Nikkei .N225 gave up 0.7% while U.S. stock futures
shed 0.3% EScv1 in Asia after hefty gains on Monday in the
wake of surging Chinese shares.
Analysts say jawboning by the Chinese government through a
state-sponsored journal on the importance of "fostering a
healthy bull market" is spurring the buying binge in mainland
Chinese shares. Bluechip CSI300 index of Shanghai and Shenzhen shares
.CSI , which had gained more than 13 in the past five sessions,
gained another 1.7%, led by rises in tech sector .SSEINT .
"China is now trying to put all its resources on the
semi-conductor and the IT sector so it can stand on its own feet
in the area," said Norihiro Fujito, chief investment strategist
at Mitsubishi UFJ Morgan Stanley Securities.
"Given this whole project is likely spearheaded by (Chinese
leader) Xi Jinping, the rally could have a long leg to go, even
though it does feel a bit risky and could be prone to setbacks."
China's moves came as the Sino-U.S. disagreements have gone
beyond trade and tariff to include a whole gamut of issues, such
as the status of Hong Kong, signalling to some investors that
Beijing may be aiming to reduce its dependence on the West.
The current China rally has echoes of the past, especially
during 2007 and in the buying binge that followed the crash in
2015 that was largely driven by Chinese retail investors.
"Shades of John F. Kennedy's 'Ask not what your country can
do for you' inauguration speech here and as close as you might
get to a Chinese government 'put' as anything the Fed has done
to date vis-à-vis the U.S. stock (and credit) markets," said Ray
Attrill, head of FX strategy at NAB, in a research note.
A sharp rebound in U.S. services industry activity in June,
almost returning to pre-pandemic levels, also helped to whet
investors' risk appetite. Still, new coronavirus cases surged in several states,
forcing some restaurants and bars to close again in a setback to
the budding recovery, keeping gains in risk assets in check.
In the currency market, the Chinese yuan made headway,
hitting its highest levels in nearly four months. The renminbi
rose 0.1% to 7.0115 per dollar CNY=CFXS .
"The yuan is supported by the risk-on mood in the Chinese
share market despite lingering uncertainties over the U.S.-China
relations and an anticipated slow pace of recovery," said Ei
Kaku, senior strategist at Nomura Securities.
"Nor have we seen large capital flows that would boost the
yuan," she said.
Other major currencies were little changed, with the yen
flat at 107.37 to the dollar JPY= and the euro unchanged at
$1.1312 EUR= .
The Reserve Bank of Australia is expected to hold its cash
rate at 0.25% and make no changes to policy at Tuesday's board
meeting, leaving markets to focus on the accompanying statement.
There will be particular attention on whether the central bank
notes the Australian dollar's rise. The Aussie was steady at $0.6964 AUD=D4 .
Gold held steady near 8-year peak, changing hands at
$1,783.3 per ounce.
Oil prices eased in tandem with the pullback in stocks.
Brent crude LCOc1 lost 0.66% to $42.83 per barrel, while
U.S. West Texas Intermediate crude CLc1 fell 0.64% to $40.37.

(Editing by Shri Navaratnam)