GLOBAL MARKETS-Asia stocks rise as policy tweaks boost China markets

* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* European stock futures touch higher in early trade
* U.S.-Mexico relief, firmer China shares support Asia
* Dollar extends gains as rebound in U.S. yields continues
* Crude oil finds traction after previous day's slide

By Shinichi Saoshiro
TOKYO, June 11 (Reuters) - Asian stocks gained on Tuesday,
led by Chinese shares after Beijing eased financing rules to
boost local government spending on public works, and bolstered
by investor relief following a U.S. decision to hold off import
tariffs on Mexico.
Hopes that U.S. interest rates will be cut as early as next
week have also provided broader support.
In early European trade, the pan-region Euro Stoxx 50
futures STXEc1 were up 0.06%, German DAX futures FDXc1
gained 0.04% and FTSE futures FFIc1 added 0.14%.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS gained 0.8%.
The Shanghai Composite Index .SSEC climbed 2% after China
said on Monday that it would allow local governments to use
proceeds from special bonds as capital for major investment
projects in a bid to support the slowing economy. Australian stocks .AXJO rose 1.5%, South Korea's KOSPI
.KS11 added 0.55% and Japan's Nikkei .N225 edged up 0.3%.
U.S. stocks extended their recent climb on Monday, with the
Dow .DJI rising for the sixth trading day.
Relief that the United States had stepped back from an
immediate imposition of tariffs on Mexico encouraged buyers,
though U.S. Secretary of State Mike Pompeo warned the United
States could still slap tariffs on Mexico if not enough progress
was made on its commitment to stem illegal immigration.
.N
While global markets have been given some reprieve, fresh
U.S. trade threats against China were seen limiting any major
boost to investor sentiment.
U.S. President Donald Trump said on Monday he was ready to
impose another round of punitive tariffs on Chinese imports if
he cannot make progress in trade talks with Chinese President Xi
Jinping at the G20 summit. The U.S. president has repeatedly said he expected to meet
Xi at the June 28-29 summit in Osaka, Japan, although China is
yet to confirm any such meeting.
"The lift from the U.S.-Mexico trade development is likely
to be a temporary one for the equity markets as the bigger issue
between the United States and China remains unresolved," said
Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset
Management.
"Nervousness will prevail in the markets until the G20
summit. And there is no guarantee that matters will improve even
if the U.S. and Chinese leaders meet at the summit."
Tensions between Washington and Beijing rose sharply in May
after the Trump administration accused China of having reneged
on promises to make structural economic changes during months of
trade talks.
Investors worry that the conflict could prompt China to
retaliate by putting U.S. companies on a blacklist or banning
exports to the United States of rare earth metals. China
accounts for roughly 80% of U.S. rare earths supply which are
essential for high-tech goods.
Rare earth production: https://tmsnrt.rs/2I9MfL5
In the currency markets, the dollar extended gains it made
against its peers in the wake of Friday's agreement between the
United States and Mexico.
The dollar index against a basket of six major currencies
.DXY was a shade higher at 96.774 after advancing 0.2% on
Monday.
The dollar was up 0.15% at 108.600 yen JPY= and the euro
EUR= was steady at $1.1315 following a loss of 0.2% the
previous day.
The benchmark U.S. Treasury 10-year yield US10YT=RR
stretched an overnight spike and touched an 11-day peak of
2.157%. The yield had risen about 6 basis points on Monday as
the U.S.-Mexico deal boosted risk appetite and curbed investor
demand for safe-haven government debt.
The Treasury market has experienced volatility over the past
week, with the 10-year yield having fallen to a near two-year
low of 2.053% on Friday after a soft U.S. jobs report raised
expectations for an interest rate cut by the Federal Reserve.
The prospect of the central bank lowering rates this year
had already risen earlier last week after a number of Fed
officials including Chairman Jerome Powell hinted they were open
to easing monetary policy.
Market focus was on the Fed's next policy meeting on June
18-19 and what kind of signals the central bank could use to
provide regarding monetary policy direction.
"While it easy to focus on the potential reaction should the
Fed not meet the market pricing, a world where the Fed signals
an intent to ease married with a better feel to U.S.-Sino
relations, is a world where traders take additional risk," wrote
Chris Weston, Melbourne-based head of research at foreign
exchange brokerage Pepperstone.
U.S. West Texas Intermediate (WTI) crude oil futures CLc1
were up 0.58% at $53.57 per barrel, finding some traction after
sliding the previous day.
Crude oil fell on Monday, with U.S. futures losing 1.3%, as
major producers Saudi Arabia and Russia had yet to agree on
extending an output-cutting deal and with U.S.-China trade
tensions continuing to threaten demand for the commodity. O/R

(Editing by Simon Cameron-Moore and Sam Holmes)