* Asian shares ease on worries rally has run out of gas
* Nikkei drops 1.6 percent as market cautious before election
* Yen climbs on worry that risk rally has overtaken recovery
By Charlotte Cooper
TOKYO, Aug 27 (Reuters) - Asian shares fell on Thursday and the yen rose after Wall Street largely shrugged off encouraging U.S. home sales and durable goods data, leaving investors wary about chasing shares higher.
European shares were set to open little changed, with financial spreadbetters expecting Britain's FTSE 100 <.FTSE> to open flat, Germany's DAX <.GDAXI> to open flat and France's CAC <.FCHI> to open as much as 0.1 percent or 4 points lower. [ID:nLR361547]
Shares in Japan fell 1.6 percent after the Nikkei average hit a 10-month closing high the previous day, with exporters losing steam and caution setting in ahead of national elections on Sunday.
The MSCI index of Asia-Pacific shares excluding Japan <.MIAPJ0000PUS> dropped 0.8 percent. It has lost roughly 3 percent since hitting an 11-month high earlier this month amid investor worries that surging share prices have run too far ahead of economic fundamentals and may be due for a reversal.
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"There's a sense of buying fatigue among investors globally and that is leading to profit-taking," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities in Japan.
"The external environment that had helped produce gains in the market has started showing signs of waning. The U.S. market could be entering a correction phase and the direction of Chinese stocks remains uncertain."
Shares in China's benchmark stock index <.SSEC> fell 1 percent after a big share offer announced by the country's second-biggest listed property developer China Vanke <000002.SZ> kept the focus on a hefty supply of new shares in the near future.
On Wednesday, orders for long-lasting U.S. manufactured goods registered the biggest advance since July 2007, but orders excluding transport goods were slightly below expectations. New home sales jumped in July by their fastest pace in 10 months. [ID:nN26259327]
Investors on Wall Street were cautious, with shares bouncing after the favourable data but then fizzling out. [.N]
The Dow Jones industrial average <.DJI> gained just 0.04 percent while the Standard & Poor's 500 Index <.SPX> and the Nasdaq Composite Index <.IXIC> ended up just 0.01 percent.
In Tokyo, exporters such as digital camera maker Canon Inc <7751.T> faced selling pressure.
Market watchers said investors have factored in a big win by the opposition Democratic Party in Sunday's election and the focus is shifting to what happens after the vote, including who will be the next finance and economy ministers. [nPOLJP]
Australian shares dipped 0.1 percent <.AXJO>, even in the wake of data showing that new capital expenditure in Australia rose 3.3 percent in April-June from the previous quarter, outstripping forecasts and suggesting the economy is growing faster than expected. [ID:nSYD468294]
STERLING SAGS, DOLLAR DIPS
In currencies, sterling
"It seems like the daily moves of 1 yen or 2 you see in the market now are being driven by short-term speculative money," said Toru Tanaka, senior manager of treasury and foreign exchange at Mitsubishi Corp.
Currency market players have been monitoring Chinese shares closely in the past few weeks as a gauge of how much the Asian giant can help pull the world out of recession but the mood was also wary with investors nervous a rally in riskier assets has run ahead of itself.
The dollar fell 0.6 percent to 93.65 yen
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Gold prices were also stable, with spot gold
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