TOKYO, May 15, 2018 (Reuters) - Asian stocks pulled back on Tuesday, brushing off a firmer lead from Wall Street, as investors turned cautious after soft Chinese economic data and awaited fresh developments on US-China trade talks and North Korea. Crude oil prices held near 3-1/2-year highs on supply concerns, while the dollar edged higher, underpinned by a rise in US bond yields. Spreadbetters expected European stocks to follow their Asian peers lower, with Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI all seen shedding 0.2 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.8 per cent after rising the previous day to its highest since late March. The index had rallied for three straight sessions prior to Tuesday. Japan's Nikkei .N225 dipped 0.1 per cent, with its surge to a three-month peak bogging down. "The markets appear to be taking a breather after their recent surge, awaiting fresh developments in matters such as US-China trade issues and Washington's upcoming summit with North Korea," said Yoshinori Shigemi, global markets strategist at JP Morgan Asset Management in Tokyo. The two countries are still "very far apart" on resolving trade frictions, US Ambassador to China Terry Branstad said on Tuesday as a second round of high-level talks was set to begin in Washington. Hong Kong's Hang Seng .HSI lost 0.9 per cent, pulling back from a two-month peak to snap a five-day winning run, while Shanghai .SSEC slipped 0.2 per cent. China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policymakers try to navigate debt risks and defuse a heated trade row with the United States. The downbeat economic news temporarily offset optimism over further foreign inflows into Chinese stocks ahead of their inclusion in MSCI's widely tracked equity benchmarks from June 1. Investors in Chinese equities will likely have to re-jig their exposure after the US index publisher made some last-minute tweaks in its index weightings on Tuesday. MSCI said 234 Chinese large caps will be included in its global and regional indexes next month. Wall Street scraped out gains on Monday after weakness in defensive stocks offset optimism following US President Donald Trump's conciliatory remarks toward China's ZTE Corp that helped calm US-China trade tensions. While higher oil prices sometimes raise inflation concerns, the recent crude oil surge - Brent has risen 17 per cent so far in 2018 - was seen to be generally supportive for equities. "The recent rise in prices of crude oil won't have a broadly negative impact on equity markets if it continues at the current pace," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. "The rise in oil prices is boding well for certain stock sectors like energy shares." Brent crude LCOc1 added 6 cents to $78.29 a barrel, nearing a 3-1/2-year high marked on Monday. US crude oil futures CLc1 advanced 2 cents to $70.98 and in reach of its highest level since November 2014 scaled on Thursday. Oil prices received their latest lift as OPEC reported that the global oil glut has been virtually eliminated. Tensions in the Middle East and uncertainty about output from Iran amid renewed US sanctions have contributed to the recent rise in oil prices. "The commitment of Saudi Arabia and the rest of OPEC to the production cuts is a major factor in supporting the price at the moment as well as the possibility of reduced exports from Iran due to sanctions," said William O'Loughlin, investment analyst at Rivkin Securities. In currencies, the dollar index against a basket of six major currencies gained 0.3 percent to 92.801 .DXY. The greenback took a knock against the euro earlier on Monday after European Central Bank policymaker Francois Villeroy de Galhau said the ECB could give fresh timing guidance of its first rate hike as the end of its exceptional bond purchases approaches.
