July 7 (Reuters) - Asian share markets crept cautiously higher early on Thursday after upbeat U.S. 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 percent, having shed 1 percent on Wednesday when fears over European instability swept markets.
Australian stocks rose 0.7 percent and South Korea put on 1.1 percent.
Dealers cautioned that fresh Brexit concerns could flare up at any time, a risk reflected in the parlous state of sterling.
The British pound huddled at $1.2918 in early trade, having slid almost 3 percent in the previous two sessions to carve out a 31-year trough of $1.2898.
The yen was well bid as a traditional safe harbour and held at 101.10 per U.S. dollar, 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.
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.
NO FED HIKE UNTIL 2019?
Sentiment got a welcome lift from a survey showing activity in the giant U.S. service sector hit a seven-month high in June as new orders surged and companies hired more.
That helped the Dow rise 0.44 percent, while the S&P 500 gained 0.54 percent and the Nasdaq 0.75 percent.
Minutes from the U.S. 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 U.S. dollar, has made it very unlikely the Fed will be able to hike rates again this year.
Fed fund futures for December <0#FF:> 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 percent, some way below the rate of U.S. inflation.
Indeed, analysts estimate over $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 U.S. 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 U.S. data and expectations for a sharp drop in crude stockpiles.
NYMEX crude futures were quoted 26 cents firmer at $47.69 a barrel, while Brent added 27 cents to $49.07.
Asia stocks bounce, upbeat U.S. data soothes nerves
