(Updates at 0325 GMT)

By Rae Wee

SINGAPORE, Aug 16 (Reuters) - Asia shares were headed

for a weekly gain on Friday and Japan's benchmark Nikkei was

poised for its best week in over four years as upbeat risk

sentiment spilled over from Wall Street, while the dollar and

U.S. Treasury yields held broadly steady.

Last week's market turmoil was replaced by calmer conditions

this week after a raft of U.S. economic data allayed recession

fears in the world's largest economy and pushed back against

expectations for aggressive U.S. rate cuts.

"Our assessment is that the market fallout from the weak

early August U.S. data was disproportionate and in large part

reflected the rapid unwind of crowded positions in some

markets," said Jonas Goltermann, deputy chief markets economist

at Capital Economics.

"While the risk of a recession in the U.S. has increased a

little, there are few signs of a more substantial crisis

brewing."

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

advanced 1.18% and was set to rise more than 2%

for the week, while U.S. futures extended gains following a

strong overnight cash session on Wall Street.

S&P 500 futures rose 0.13%, while Nasdaq futures

added 0.22%. Similarly, EUROSTOXX 50 futures

gained 0.25% and FTSE futures were little changed.

Strong U.S. retail sales data and low weekly jobless claims

were the latest shot in the arm for the positive risk mood,

following a benign inflation report earlier this week that

reaffirmed bets for imminent Fed rate cuts, but likely at a

measured pace.

Markets are now pricing in just a 25% chance of a

50-basis-point cut from the Federal Reserve next month, down

from 55% a week ago, according to the CME FedWatch tool.

"The totality of data tells us disinflation is continuing

and the Fed is almost certain to cut rates in September by

25bps," said David Chao, Invesco's global market strategist for

Asia Pacific ex-Japan.

"But I do believe that the July inflation report diminishes

the chances of a super-size cut, though this was never in the

cards."

Japan's Nikkei was a notable outperformer in Asia,

jumping nearly 3%.

Chinese blue-chips ticked marginally higher, while

Hong Kong's Hang Seng Index rose 1.7%.

The Nikkei, which suffered heavy losses last week

exacerbated by the unwinding of yen-funded carry trades, was

poised for a weekly gain of about 8%, its best performance since

April 2020.

Friday's gains were in part helped by a weaker yen which

last stood at 148.88 per dollar, languishing near a

two-week low of 149.40 hit in the previous session and some

distance away from last week's seven-month peak.

The Swiss franc, which also surged last week on

the back of a flight to safety, was little changed at 0.8713 per

dollar and looked set to lose nearly 0.7% for the week.

In other currencies, the euro struggled to break

above the $1.10 level against a firmer dollar, which was buoyed

by elevated U.S. Treasury yields.

The two-year yield hovered near an over one-week

high and last stood at 4.0700%, while the benchmark 10-year

yield steadied at 3.8997%.

In commodities, oil prices edged lower on Friday, though

were set for a weekly gain as the upbeat U.S. economic data

eased investor worries about a potential recession in the top

oil consuming nation.

Brent crude futures dipped 0.22% to $80.86 per

barrel, while U.S. West Texas Intermediate crude futures

eased 0.32% to $77.90 a barrel. Still, the two were eyeing a

weekly gain of more than 1% each.

Spot gold dipped 0.19% to $2,451.56 an ounce.

(Editing by Shri Navaratnam)