MSCI Asia ex-Japan adds 0.7 pct, Chinese shares outperform
* Nikkei falls amid end-quarter adjustments, China worry
* Euro, Aussie, and commodities drift higher as dollar weakens
* Spain's economic reform and budget soothe sentiment
By Chikako Mogi
TOKYO, Sept 28 (Reuters) - Asian shares mostly rose on Friday on optimism economic reform and budget plans unveiled by Spain will help the debt-saddled nation manage its debt imbalances, in a move seen as an effort to pre-empt the likely conditions of international assistance.
Riskier currencies such as the Australian dollar, the euro and commodities also drifted higher as the dollar remained defensive.
The MSCI index of Asia-Pacific shares outside Japan rose 0.7 percent, extending Thursday's sharp gains triggered by a spike in Chinese shares as speculation of further stimulus steps spread. Sentiment was buoyed by Spain's announcement on Thursday of a detailed timetable for economic reform and a budget based mostly on sharp spending cuts rather than tax hikes.
Madrid is talking to European Union authorities about the terms of a possible aid package, which would pave the way for initiating the European Central Bank's bond-buying programme aimed at easing the country's borrowing strains.
"It's a move in the right direction because at the very least they have to meet the conditions for the ECB to buy their bonds," said Tetsuro Ii, CEO of Commons Asset Management.
Hong Kong and Shanghai shares led the pan-Asian stock index again, rising 0.6 percent each, as hopes simmered for China to take measures over the coming long holiday to boost the economy and support its domestic stock markets.
The yen hit a two-week high against the dollar around 77.50 yen on Friday, after the dollar index measured against a basket of currencies fell 0.4 percent on Thursday for its biggest daily drop in two weeks.
"Risk is primed for a comeback, and the AUD (Australian dollar) may be the biggest beneficiary," Neal Gilbert, currency strategist at GFT Forex in New Jersey, said in a note.
"If Asia is as satisfied with the Spanish Budget Plan as the rest of the world, a run back up to resistance from last week at 1.0520 may be in order," he said, referring to the Australian dollar. The Aussie, widely seen as a gauge for investor risk appetite, rose 0. 3 percent to $1.0466.
Asian credit markets firmed, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by three basis points.
Shares in Australia, heavily reliant on resources demand from China, inched up 0.2 percent, but were capped on concerns over the economic weakness in the world's second-largest economy, with Fitch Ratings cutting its 2012 growth forecast for China from 8 percent to 7.8 percent on Friday.
"There are a lot of people out there who are very concerned about whether or not the stimulus in China is real or coming through," said Damien Boey, an equity strategist at Credit Suisse.
Japan's Nikkei stock average bucked the rest of Asia and eased 0.3 percent amid adjustments related to the end of the fiscal first-half and concerns about falling revenues for local companies in China, hit by recent anti-Japan protests.
The euro rose 0.2 percent to $1.2934, rebounding from a two-week low of $1.2828 touched on Thursday.
Later on Friday, a stress test of Spain's banking sector will be released, which will reveal how much more money is needed to recapitalise its banks. Moody's latest credit rating review is also expected this week.
CHINA MOVE EYED
Reflecting choppy market sentiment, the CBOE Volatility index which measures volatility expected in the Standard & Poor's 500 index fell 11.7 percent on Thursday for its sharpest daily decline in three weeks, just a day after the index posted its biggest daily rise in 2-1/2 weeks.
Talk authorities would offer measures to prop up the wobbly Chinese stock markets lifted the Shanghai Composite Index up as much as 3 percent on Thursday, one day after the index hit its lowest point since February 2009.
Sentiment also improved after China's central bank injected a record amount of liquidity into the money markets this week to ease funding strains as China heads for a week-long holiday.
Following fresh monetary stimulus unveiled by the United States and Japan this month, markets have retained expectations for China to cut interest rates to spur growth, as weakening demand in China has damaged global economies and weighed on investor sentiment.
Data on Friday showed Japan's industrial output fell more than expected in August as the world's third-largest economy was held back by a strong yen, confidence-sapping euro zone debt crisis and a slowdown in its top export market China.
Beijing approved about $150 billion-worth of infrastructure projects this month.
But China's biggest listed steelmaker, Baoshan Iron & Steel Co, which has suspended output at a loss-making plant, expressed doubt that attempts to prop up the slowing economy would revive demand in the world's biggest market for the metal. A slump in iron ore prices had triggered a broad sell-off in riskier assets.
U.S. crude rose 0.5 percent to $92.29 a barrel and Brent also rose 0.5 percent to $112.51.