(Updates prices)

By Scott Murdoch

SYDNEY, April 10 (Reuters) - Asian stocks traded higher

on Wednesday, unfazed by a rating downgrade to China by Fitch

which triggered a mild domestic sell-off as the world's

second-biggest economy struggles to mount a solid post-COVID

recovery.

In early European trades, the pan-region Euro Stoxx 50

futures were up 0.55% at 4,970, German DAX futures

were up 0.39% at 18,391, FTSE futures were up

0.64% at 7,996.

U.S. stock futures, the S&P 500 e-minis, were up

0.1% at 5,265.3.

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

was up 0.48%, after U.S. stocks ended the

previous session with mild gains. The index is up 0.2% so far

this month.

The yield on benchmark 10-year Treasury notes

was at 4.3556% compared with its U.S. close of 4.366% on

Tuesday. The two-year yield, which rises with

traders' expectations of higher Fed fund rates, touched 4.7384%

compared with a U.S. close of 4.747%.

Fitch affirmed China's sovereign rating at 'A+' even though

the outlook was downgraded to negative and it forecast economic

growth this year would slow.

"These downgrades reflect mostly the current cyclical

situation in China, they are not forward looking. This means

that as and when China's economy improves, they will change

their rating outlook to positive," said Chi Lo, BNP Paribas

Asset Management senior strategist. He added the Fitch move

followed a similar call by Moody's in December.

China's blue chip CSI300 index was off 1.11% after

earlier opening flat while the Shanghai Composite was

down 1%. Hong Kong's Hang Seng Index escaped the selling

and was trading up 1.45%.

Australian shares were up 0.3%, while Japan's Nikkei

stock index was down 0.55%. The Nikkei is looking to

test 40,000 points again, with the yen's slide seen helping fuel

that push.

However, further weakness in the Japanese currency could

prompt authorities to intervene, especially if the yen breaks

152 per dollar. Any intervention moves though were unlikely to

see the yen strengthen sharply, analysts said.

"We don't expect the yen, with interest rates going up in

Japan, that there will be major upside in the currency in the

near future," said Marcella Chow, senior strategist at JPMorgan

Asset Management.

"The Bank of Japan will be taking very small steps at a time

when a lot of global central banks are contemplating cutting

rates means any yen moves higher will be limited."

In Asian trade, the dollar rose 0.01% against the yen to

151.78. The currency is getting closer to its high this

year of 151.97 on March 27.

The European single currency was flat at $1.0856,

having gained 0.64% in a month, while the dollar index,

which tracks the greenback against a basket of currencies of

other major trading partners, was up at 104.14.

U.S. consumer price data due on Wednesday will be closely

watched by investors as they seek direction on the next move in

interest rates. The data is expected to show a rise in headline

inflation to 3.4% year-on-year, from 3.2% in February.

"Markets are looking at the data to answer one question: is

inflation sticky or is the disinflation progress in line with

Fed's expectations?," ANZ's economists said.

"We think the data will suggest that inflation pressures are

waning slowly."

The prospect of a U.S. interest rate cut as early as June is

now being considered by financial markets, with the inflation

reading seen as key to the central bank's next move.

In the U.S., the Dow Jones index finished down 0.02%,

the S&P 500 gained 0.1%, while the Nasdaq Composite

rose 0.3%.

U.S. crude ticked up slightly to $85.34 a barrel.

Brent crude rose to $89.52 per barrel.

Gold was slightly higher. Spot gold traded at

$2,352.93 per ounce.