(Updates prices)

By Kevin Buckland

TOKYO, July 26 (Reuters) - The yen stabilized near a

12-week high against the dollar on Friday while Asia-Pacific

equity markets found their feet, a day after their worst session

since mid-April.

MSCI's broadest index of Asia-Pacific shares

was just 0.06% lower on Friday, following a 1.88% tumble the

previous day.

Much of the weakness emanated from Taiwan, which reopened

from a two-day closure due to a typhoon to slump 3.53% as the

tech-heavy equity index caught up with the rout in the

rest of the world since mid-week.

Japan's Nikkei eased 0.12% after failing to sustain

earlier gains, but Australia's benchmark added 0.79% and

South Korea's Kospi gained 0.89%.

Hong Kong's Hang Seng rose 0.21% while mainland blue

chips were flat.

U.S. stock futures pointed higher after two days of selling

in the cash indexes, with S&P 500 futures rising 0.43%

and Nasdaq futures advancing 0.53%.

Pan-European Stoxx 50 futures added 0.17%.

U.S. economic data from overnight gave some cause for

optimism, with economic growth faster than expected in the

second quarter and inflation cooling. That helped dispel worries

that the expansion was in danger of an abrupt end, while also

supporting wagers for a Federal Reserve interest rate cut in

September.

Friday's release of the PCE deflator, one of the Fed's

preferred price gauges, will be "the next test, and arguably

climax to the week's trade", said Kyle Rodda, a senior market

analyst at Capital.com.

"There are concerns about upside risk to the current

consensus estimate for the PCE Index," Rodda said.

"While a modest upside surprise wouldn't necessarily derail

the path back to the target of inflation, it could impact the

expected timing of the first (Fed) cut and the number of cuts

that could come over the next six months. That could rattle the

markets at a time when sentiment is already a little cautious."

YEN UP 2.5% VS DOLLAR THIS WEEK

Safe-haven demand for the yen cooled overnight, and an

unwinding of long-held bearish bets lost steam after the

Japanese currency gained some 2.5% this week against the dollar,

putting it on track for its best performance since late April.

The dollar last traded 0.19% lower at 153.67 yen, after

dropping as low as 151.945 on Thursday for the first time since

May 3, and then springing back by the end of the trading day.

The area between 152 and 151.80 has proved to be "a brick

wall of demand," said IG analyst Tony Sycamore.

"We continue to expect this support level to hold, with a

squeeze back toward 155.30ish not out of the question ahead of

Wednesday's Bank of Japan meeting," Sycamore said. "After that,

all bets are off."

The BOJ and the Federal Reserve both announce policy

decisions on July 31.

The rate futures market has priced in a 67.2% chance that

Japan's central bank will raise rates by 10 basis points (bps),

up from a 40% chance earlier in the week, according to LSEG

estimates.

Markets see only a slight chance for a Fed rate cut of at

least 25 bps next week, but are fully pricing in a September

reduction, according to CME's FedWatch Tool.

U.S. two-year Treasury yields eased slightly in Asian hours

to 4.4348% but were well off the overnight low of

4.34%, a level last seen in early February.

The 10-year yield was down slightly at 4.2445%.

Elsewhere in currency markets, the euro rose 0.13%

to $1.0857 and sterling added 0.11% for $1.2864.

Oil prices rose slightly as the stronger-than-expected U.S.

economic data raised expectations for increased crude demand

from the world's largest energy consumer.

Brent crude futures for September rose 12 cents to

$82.49 a barrel. U.S. West Texas Intermediate crude for

September increased 13 cents to $78.41 per barrel.