* Nikkei rises to 8-mth high, with exporters in demand
* Bond yields up, with tightening seen sooner not later
* Will the U.S. dollar follow interest rate spreads now? (Repeats to more subscribers)
By Kevin Plumberg
HONG KONG, June 8 (Reuters) - Japanese stocks rose to an eight-month high on Monday after smaller than expected U.S. job losses suggested a recovery is under way, while government bonds slid as investors speculated central banks may have to raise interest rates sooner than previously thought.
After its biggest weekly rise in two months, the U.S. dollar slipped as dealers bought back other currencies at cheaper levels. But higher U.S. Treasury yields and doubts about the speed at which central banks will diversify their dollar reserves have improved the dollar's outlook.
Investors will likely focus this week on a deluge of Chinese economic data for clues on whether consumer demand for Asian goods is strengthening in major Western markets, and if Chinese domestic demand is continuing to partly offset weak exports.
Reports due this week include trade, industrial production, fixed investment and retail sales.
Japan's Nikkei share average advanced 1.2 percent, with major exporters such as Canon Inc and Honda Motor Co among the biggest supports to the index.
"Money is flowing into assets such as commodities and stocks as risk tolerance has steadily improved on the back of hopes for a recovery. But we are still not in a position to be overly optimistic over the medium to long term," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.
The MSCI index of Asia Pacific stocks outside Japan fell 0.65 percent, with declines spread out fairly evenly across the sectors, suggesting investors were trimming positions amid concerns about how much longer a three-month global equity rally will last.
Hong Kong's Hang Seng index was the biggest loser in the region, falling 1.45 percent. Shares of global lender HSBC fell 2.2 percent, weighing on the index.
Australian markets were closed for a public holiday.
U.S. markets ended mixed on Friday.
DOLLAR
The dollar index, a gauge of the greenback's value against a basket of six currencies, shed modest early gains and eased 0.06 percent to 80.618 by late morning.
The dollar index rose 1.6 percent on Friday, its best performance since Dec. 19, according to Reuters data.
The euro crept back up to $1.40 after falling to a low around $1.3930 on Friday, after a U.S. nonfarm payrolls report for May showed the fewest job losses since September.
The dollar's reaction to the payrolls data was significant because in the last several months, positive U.S. economic surprises have usually pushed the dollar down, as investors moved out of safe assets to higher yielding ones.
Yet, with the spread of 2-year euro zone government bond yields over the same maturity U.S. Treasuries collapsing around 22 basis points since last Thursday, investors may begin to look for higher returns in the U.S. assets.
"We suspect the dollar will continue to remain supported over the coming days, especially if interest rate differentials are once again regaining their influence," said Mitul Kotecha, global head of foreign exchange strategy with Calyon in Hong Kong, in a note.
Higher commodity prices kept the Australian dollar supported. The currency climbed 0.5 percent from late New York on Friday to US$0.7975 though it was well off eight-month highs around $0.8263 hit last Wednesday.
U.S. Treasury yields edged up further after jumping on Friday. The benchmark 10-year yield rose to 3.87 percent having risen about 74 basis points in the last month.
The 2-year yield inched up to 1.33 percent to the highest since November 2008.
The swift rise in longer-dated yields and the smaller than expected job losses ignited fears that the U.S. Federal Reserve may have to raise interest rates sooner than expected, which could dampen an economic recovery.
Japanese government bond futures fell 0.4 point having declined 1.2 percent in the last two months.
U.S. light crude for July delivery slipped to $67.95 a barrel after hitting a seven-month high above $70 on Friday.
Gold in the spot market rose 0.3 percent to $958.10 an ounce after the dollar's strength on Friday cut the metal down by 2 percent. (Additional reporting by Aiko Hayashi in TOKYO) (Editing by Kim Coghill)