GLOBAL MARKETS-Japan shares hit 10-mth peak on eurozone data

* Equities get some boost from positive German, French data

* China shares dive, highlight fears global rally overdone

* Commodities sustain gains on economic optimism

* Australian dollar factors in higher interest rates

* Weak U.S. demand remains a worry

By Umesh Desai

HONG KONG, Aug 14 (Reuters) - Japanese stocks ended at a 10-month high on Friday after upbeat eurozone growth data and positive earnings from the world's largest retailer helped offset gloomy U.S. retail and jobs data, factors which pulled down the dollar.

European shares <.FTEU3> opened slightly higher amid growing confidence in a global economic rebound. Germany and France both reported on Thursday that their economies grew 0.3 percent in the second quarter, ending their recessions earlier than expected.

Shares in much of the rest of Asia, however, surrendered early gains as China shares suffered their biggest weekly loss in five months, weighed down by worries about new share supplies and possible tightening of market liquidity.

Commodity prices gained on the eurozone performance, while the Australian dollar surged to a 2009 peak as comments from the Reserve Bank of Australia chief caused markets to price in a greater chance of an interest rate rise before year end.

Oil prices rose for the third straight day and copper prices extended their stunning rally as market hopes for a robust economic recovery were reflected in a strong Wall Street finish after U.S. retail giant Wal-Mart's earnings beat consensus.

U.S. Treasuries dipped but held most overnight gains made after investors snapped up a record $15 billion auction of 30-year U.S. government bonds, offsetting fears foreign buyers may demand higher yields for holding longer maturities.

"The positive figures out of Germany and France are still a favourable factor for the market, though such prospects had been somewhat priced in during the global market rally over the past month," said Soichiro Monji, chief strategist at Daiwa SB Investments.

The equity rally in Asia is now in its sixth month, but appears to be rapidly losing steam. Some analysts say share prices have got too far ahead of economic fundamentals and look expensive when compared with weak company earnings outlooks.

The MSCI index of Asia Pacific shares traded outside Japan <.MIAPJ0000PUS> rose as much as 1.2 percent in morning trade, nearing an 11-month high, before giving back all of its gains as China shares slumped.

The index has climbed around 80 percent since March 9, when the global rally began.

Chinese shares provided most of the drag, with the Shanghai Composite Index <.SSEC> tumbling more than 3 percent at one point on fears more companies would capitalise on red-hot stock market valuations by selling new shares.

The Shanghai index ended down 3 percent at a six-week closing low, and lost 6.5 percent on the week.

Persistent concerns about tighter liquidity also resurfaced on worries the central bank would fine-tune its loose monetary policy and clamp down on new bank lending on a wall of liquidity that has driven most of this year's 90 percent rally.

Losses in Shanghai dragged Hong Kong's Hang Seng index <.HSI> into the red and pulled the Nikkei <.N225> off its highs. Still, Japanese shares ended up 0.8 percent, buoyed by the European data and brokerage ratings upgrades on construction machinery firms.

EURO OFFSETS GLOOMY U.S.

Overnight, the European optimism helped offset gloomy U.S. jobs and retail data.

Wall Street was also cheered by the second-quarter earnings and outlook from Wal-Mart Stores Inc and after news of bank share purchases by hedge fund manager John Paulson. [.N]

Paulson, who had made a fortune betting against financial companies after foreseeing the credit crisis -- disclosed that he had bought large stakes in several banks, including Bank of America .

The U.S. Commerce Department reported retail sales fell 0.1 percent in July, defying market expectations of a gain and the number of workers filing initial applications for unemployment benefits rose, belying anticipations of a drop.

The negative economic data brought down the dollar <.DXY>, which remained weak against the yen. The safe-haven yen also benefited from the fall in Chinese shares, which prompted some investors to reverse bets on riskier assets.

The dollar fell 0.3 percent versus the yen compared to late U.S. trading on Thursday at 95.25 yen , after Thursday's dismal data cast a shadow over an anticipated consumer rebound.

The Australian dollar received a leg-up after an upbeat assessment of the Australian economy by Australian central bank Governor Glenn Stevens was taken as a hint that Australia could be the first major developed nation to raise rates.

It struck an 11-month high of $0.8479 before retreating as the drop in Shanghai reminded investors about the risk of a sudden change in the market's mood.

Financial markets moved in to price in a 90 percent chance of a quarter percentage point rate rise in November, from around 72 percent before Stevens' comments.

Commodity bulls remained busy with U.S. oil for September delivery up 0.3 percent at $70.74 a barrel , while copper traded in Shanghai was up 0.5 percent, off an initial high.

Shanghai's benchmark third-month copper futures hit 51,280 yuan a tonne in early trade, its highest since early October last year. It surrendered most of its gains later but is still on course for its strongest weekly gain in more than two months. (Editing by Kim Coghill)