SYDNEY, Oct 3 (Reuters) - Japanese stocks jumped and the

yen fell on Thursday as the risk of further tightening in

monetary policy this year faded, while the sizzling rally in

Hong Kong's share market took a breather.

The euro was nursing heavy losses as markets ramped up bets

that the European Central Bank will cut rates at each of its

meetings in October and December after a top policy hawk Isabel

Schnabel said she expects inflation will fall back to target.

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

fell 1% while the Nikkei surged 2.2% as

a weaker yen boosted the outlook for Japanese exporters.

The dollar rose another 0.3% to 146.84 yen, about the

highest in a month. It had already jumped 2% overnight as

Japan's newly-elected Prime Minister Shigeru Ishiba said that

the country was not ready for additional rate hikes, after

meeting with the central bank governor Kazuo Ueda.

Ueda also said the central bank would move cautiously in

deciding whether to raise rates. Dovish BOJ policymaker Asahi

Noguchi also said the BOJ must patiently maintain loose monetary

conditions.

"Put together, I guess it is a comprehensive boost for the

dollar/yen because for me it has taken rate hikes off the table

for 2024... More likely we're talking about next tightening

isn't going to be until 2025," said Tony Sycamore, analyst at

IG.

"I think dollar/yen is going to be driven by the U.S. side

of the equation now. Given the fact we saw some good U.S. jobs

data this week - if that turns out to be case for non-farm

payrolls tomorrow - the dollar/yen can continue to ratchet up

higher towards 149.40 which we saw in mid-August.

Futures imply less than a 50% chance that the BOJ could hike

by 10 basis points by December, while rates are only seen

climbing to 0.5% by the end of next year, from the current

0.25%.

Elsewhere in Asia, China's mainland markets are closed for a

holiday, but Hong Kong's Hang Seng lost 2.5%, having

soared 6.2% a day earlier. The benchmark is still up a

staggering 30% in just three weeks after China announced a

barrage of stimulus measures to revive a faltering economy.

Overnight, Wall Street was mostly flat, though Treasury

yields rose after a strong private payrolls report added to

evidence of a healthy U.S labour market, lessening the risk of a

big downside miss for Friday's non-farm payrolls data.

Bonds this week have been supported by safe-haven flows as

geopolitical tensions in the Middle East ratcheted up. Israel

said eight of its soldiers were killed in combat in south

Lebanon as its forces thrust into its northern neighbour in a

campaign against the Hezbollah armed group.

Two-year Treasury yields were little changed at

3.648%, while ten year yields were flat at 3.79%.

Markets imply a 36% chance the Federal Reserve will cut by

another 50 basis points in November, compared with almost 60%

last week, and have 70 basis points priced in by year-end.

In the foreign exchange markets, the euro sagged at $1.1040,

just above key support at $1.10 and not far from Wednesday's low

of $1.10325, a level last seen on Sept. 12.

Oil prices rose on worries the escalating Middle East

conflict could threaten oil supplies from the world's top

producing region. Brent futures rose 1.1% to $74.68 a

barrel.

Gold hovered near a record high at $2,655.90 an

ounce.