(Updates prices as 0600 GMT)

By Stella Qiu

SYDNEY, Aug 9 (Reuters) - Asian shares were trying to

end a tough week on a bright note after Wall Street bounced and

data showed China taking a step away from deflation, while

Japanese stocks fought to sustain an early rally.

The Nikkei rose as much as 2.4% early in the session

before falling into the red and then edging up 0.6%. It has

erased most of the losses from a 13% crash on Monday and

finished the week 3% lower.

The yen also veered from negative to positive

through the session, last up 0.3% at 146.90 per dollar.

Wall Street futures also turned lower, with Nasdaq futures

last down 0.1%. Europe is still set for a higher open,

with both EUROSTOXX 50 futures and FTSE futures added

0.2%.

MSCI's broadest index of Asia-Pacific shares outside Japan

climbed 1.8%, more than reversing the drop from

Thursday. For the week, it has reversed earlier losses to be

largely flat.

Overnight, data showed U.S. jobless claims fell more than

expected last week, suggesting fears the labor market is

unraveling were overblown. That led markets to pare back the

chance of an outsized half-point rate cut from the Federal

Reserve in September to 54% from 69% a day earlier.

Stocks had sold off sharply after last week's U.S. jobs

report sparked fears of a potential U.S. recession, but

investors have bought into the recent dip, with the Nasdaq

3% higher overnight and S&P 500 up 2.3%.

Also helping sentiment is Chinese data showing that consumer

inflation ran at 0.5% in July, above forecasts of a gain of

0.3%, suggesting there is less risk of the economy sliding into

outright deflation.

Chinese blue chip stocks rose 0.1%, and Hong

Kong's Hang Seng index jumped 1.5%.

"The prospect of better-than-feared U.S. growth and a weaker

yen constrain the fundamental and technical risks that inspired

the extreme volatility experienced at the start of the week,"

said Kyle Rodda, a senior financial market analyst at

Capital.com.

"It's unlikely that the markets have turned the corner yet.

Whether this week's volatility is an omen of deeper downside or

merely a growth scare will depend on the August Non-Farm

Payrolls report and whether it reveals further deterioration in

labour market conditions."

A few Federal Reserve officials said they were increasingly

confident that inflation is cooling enough to allow

interest-rate cuts ahead, but not because of the recent market

rout.

Kansas City Fed President Jeff Schmid, one of the more

hawkish policymakers, said he viewed the current policy stance

as "not that restrictive", the economy resilient and labour

market still quite healthy.

"If inflation continues to come in low, my confidence will

grow that we are on track to meet the price stability part of

our mandate, and it will be appropriate to adjust the stance of

policy," said Schmid.

The U.S. dollar gained as markets gave up bets on an

emergency rate cut from the Fed, and is set for a 0.4% gain on

yen this week, despite Monday's precipitous 1.5% plunge.

The yen had gained earlier in the week following a surprise

rate hike by the Bank of Japan, which led to the unravelling of

the popular carry trade - where investors borrow yen at low

rates to buy higher yielding assets - but that seemed to be

stabilising.

The BOJ's reassurance that it will not be hiking interest

rates amid market volatility also helped sentiment recover.

Commodity Futures Trading Commission figures later on Friday

will give a clearer indication of whether that unwinding has now

run its course.

Bond yields have climbed this week with safe havens in less

demand. U.S. 10-year yields held at 3.997%, well off

Monday's low of 3.667%, and were set for a weekly gain of 20

basis points.

Two-year yields were up 17 bps this week to

4.0440%.

In commodities, crude oil was little changed on Friday but

are set for decent weekly gains on supply fears amid the

widening conflict in the Middle East as Israel waits for a

threatened attack from Iran and its proxies.

Brent crude futures held at $79.09 a barrel, but

were up more than 3% for the week, while U.S. West Texas

Intermediate crude was at $76.17, also up over 3% for the

week.

Gold prices eased, down 0.4% at $2,417.96 an ounce.