* China jitters continue to roil market
* Yen surges broadly, dollar falls to lowest in a month
* Traders cite reports China may tighten bank capital rules
* Asia shares fall, MSCI ex-Japan down over 1 pct
* Shanghai up but off highs, Hong Kong slammed (Repeats to more subscribers)
By Elaine Lies
TOKYO, Aug 21 (Reuters) - The yen surged to a one-month high against the dollar on Friday and jumped against currencies used for bets on global recovery, as fears resurfaced that China might clamp down on lending and sent Asian stocks falling.
But most regional share indexes pared their losses by late afternoon and the Shanghai share index ended higher after a day of see-saw trade.
European shares opened modestly lower amid growing volatility, trimming the previous session's gains, with resource-related shares expected to be hit by retreating commodity prices as the fickle Chinese market prompts investors to switch out of riskier assets.
U.S. stock futures fell 0.4 percent.
Sources told Reuters earlier this month that China's banking regulator, concerned record lending could lead to a spike in bad loans, might tighten banks' capital rules by excluding subordinated bonds they sell to other banks from their capital base.
A similar report on Friday re-focused attention on this issue, traders said.
"This is old news and the market has already responded to this once. But investor confidence has been so shaken by the (SHanghai) sell-off earlier this week that every time this news surfaces it's an excuse to sell," said Steven Leung, sales director at UOB Kay Hian.
Shanhai ended up a provision 1.7 percent after shaking off early losses, adding to a 4.5 percent bounce on Thursday.
But China's leading index has still lost around 15 percent in just two weeks, unnerving global investors who are trying to gauge how China's revival is playing out while wrestling with continued mixed signals on recovery prospects in major Western economies.
A government think-tank said China's gross domestic product would grow about 8.5 percent in the third quarter from a year earlier, picking up pace from the second quarter's 7.9 percent rise.
As Shanghai moved higher, the MSCI index of Asia-Pacific shares outside Japan pared losses but were still down 1 percent by 0700 GMT.
In Australia, the benchmark S&P/ASK 200 fell 1.9 percent, with banks leading the decline after a cautious assessment of the outlook for the loan market from Westpac Banking Corp.
Hong Kong, a key market for international investors playing Chinese stocks, fell 1 percent on the China policy worries despite Shanghai's stronger close.
The Nikkei average slid to a three-week low in early afternoon after automakers fell ahead of the end of the U.S. "cash for clunkers" programme on Monday, which has boosted U.S. car sales. But it recovered somewhat to close down 1.4 percent.
Shares in the world's biggest automaker, Toyota Motor Corp T> , shed 2.9 percent.
YEN RISES
The yen rose broadly against other major currencies, particularly those leveraged to a global growth recovery, as investors fretted about the potential for further weakness in Chinese shares and looked to less-risky investments. The Japanese currency is often seen as a haven in times of market turmoil.
"Anything that could be negative for growth in China is going to have a negative impact on equity markets and in turn means higher risk aversion and risk currencies sell-off," said Mitul Kotecha, global head of FX strategy at Calyon in Hong Kong.
The dollar fell to as low as 93.47 yen on trading platform EBS, its lowest in a month, but later edged up to 93.69 yen, down 0.5 percent.
The Australian dollar slid 1.4 percent to 77.23 yen after falling as low as percent to 76.86 yen
Sentiment towards the Australian dollar was hurt after ratings agency Moody's Investors Service repeated its concerns about the deteriorating financial position of many of Australia's states and said downgrades could not be ruled out.
U.S. crude futures initially edged up to a seven-week high above $73 a barrel but then slipped below that level as optimism over the pace of demand recovery in the United States faded on the back of mixed economic data.
Japanese government bonds advanced, with futures hitting a five-month high of 139.36 after gains in U.S. Treasury debt prices in New York and the drop in Tokyo stocks, but closed at 139.20.
U.S. Treasury futures climbed in Asia, with Treasury note futures hitting a more than one-month high before edging down. (Editing by Kim Coghill) (Additional reporting by Hong Kong/Shanghai newsrooms and Charlotte Cooper)