GLOBAL MARKETS-Japan stocks rally; commodities jump on China

* China inflation fastest in 2 yrs, supporting rate hike view

* LME copper hits record high, oil at 2-year high

* Japan's Nikkei at highest since June on technicals, yen

* China policy, G20 outcome make outlook for risk unclear

By Kevin Plumberg

HONG KONG, Nov 11 (Reuters) - Japan's Nikkei stock index rose to its highest since June on Thursday, adding to returns that have outstripped U.S. and European markets in November, while a blast of Chinese economic data sent copper prices to a record high.

European shares opened modestly higher with the FTSEurofirst 300 <.FTEU3> up 0.2 percent, London's FTSE 100 <.FTSE> up 0.5 percent and German's DAX <.GDAXI> up 0.4 percent. But U.S. stock index futures were slightly weaker.

Chinese consumer price inflation in October quicked to its fastest pace in two years, which is likely to sharpen complaints from Beijing and others that the Federal Reserve's $600 billion money printing scheme will hasten capital flows to their economies, complicating efforts to keep price pressures at bay.

Shares of large Chinese banks listed in Hong Kong rose on the views that banks can take advantage of higher lending rates while not necessarily paying more on deposits since in the near term China has few choices but to keep raising interest rates.

"China's process of normalising monetary conditions is going to accelerate," said Dong Tao, chief economist for non-Japan Asia at Credit Suisse in Hong Kong.

"Inflation is higher than expected and, more importantly, the authorities are giving up the thought that inflation is going to peak soon, which means that they have to take a new look at the inflation outlook and also take the so-called quantitative easing into consideration."

For a PDF on conflict at the G20 meet, click

http://r.reuters.com/jux34q

For more about the Chinese economic data, click

[ID:nSGE6AA07M]

For graphics on China's October economic data, click

http://link.reuters.com/qan84q

China's complaints are being aired at a contentious Group of 20 leaders meeting in Seoul that kicked off on Thursday. A breakthrough on alleviating economic imbalances could herald knee-jerk buying of risky assets and halt a U.S. dollar rally that has lifted it to a 1-month high. [ID:nN10121378]

The Nikkei rose 0.3 percent <.N225> after closing on Wednesday above the 38.2 percent retracement of the move down since April to 2010 lows in September. That level is important for traders who use historical chart patterns to make decisions.

Shares of big exporters such as Toyota Motor Co <7203.T> and Canon Inc <7751.T> were among the biggest lifts to the index, with the dollar up nearly 2 yen in November.

This month, the 7.4 percent gain in the Nikkei, Asia's second-worst performing equity index year to date, is higher than the 3 percent rise in the U.S. S&P 500 index <.SPX> and the roughly 2 percent increase in the FTSEurofirst 300 index <.FTEU3>.

The MSCI index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> surrendered early gains to stand little changed by late afternoon, threatening to extend a string of three down days after South Korea <.KS11> recorded its biggest single day of net foreign selling of shares.

BUST, CAUTION

Hong Kong's Hang Seng index was up 1.5 percent <.HSI>, with mainland Chinese stocks listed in the territory up 2 percent <.HSCE>.

Bank stocks were leading the charge, with some investors hopeful for improving net interest margins, or the difference between lending and deposit rates. Chinese banks were some of the biggest decliners in the prior session, suggesting some value-driven investing as well.

Credit Suisse analysts said Chinese banks and insurers will probably benefit the most from higher interest rates and stable growth, but runaway inflation poses explosive risks, namely bursting bubbles in Hong Kong.

"With its economy closely linked with the overheating Chinese economy but its monetary policy linked to the U.S. under the dollar peg, HK is now a hotbed for asset bubbles," the analysts said in a note.

The Australian dollar was trading nearly unchanged on the day at US$1.0038, fighting back after the country's unemployment rate unexpectedly rose to 5.4 percent, reducing the chances of a rate increase in February, and China's higher-than-expected CPI.

With the fundamental outlook for Australia still convincingly positive, the Reserve Bank of Australia may have to raise rates again in coming months and therefore the currency would unlikely stay down for long.

"Strong levels of participation are consistent with a strong and healthy labour market. Unemployment remains in the 5.1-5.4 percent that has been in all year. It remains consistent with the RBA's tightening bias," said Su-Lin Ong, senior economist with RBC Capital Markets in Sydney.

The U.S. dollar index <=USD>, a measure of the currency's performance against a basket of six other major currencies, was down 0.1 percent though up 2.3 percent since the Fed announced its new bond buying programme.

Bets against the dollar had grown significant in the run-up to the Fed's highly anticipated quantitative easing last week, causing dealers to trim positions with an eye on the year end.

Commodity traders took advantage of the pause on the dollar's rally and focused on the solid retail sales and investment numbers out of China.

Three-month copper on the London Metal Exchange rose to a record high of $8,966 a tonne. When the China's data first started to emerge copper was flat at $8,760.

Crude for December delivery was up 0.7 percent to $88.39 a barrel , the highest since October 2008. (Editing by Robert Birsel)