GLOBAL MARKETS-Shanghai stocks rebound, drive Asia gains

* Shanghai up 4 pct, set for biggest 1-day rise in 5 months

* Asian stocks follow China bounce, Europe called higher

* Shanghai trade still volatile on low volumes

* MSCI Asia ex-Japan gains 1.4 pct, copper and gold edge up

* Analysts say don't read too much into Shanghai swings

By Eric Burroughs

HONG KONG, Aug 20 (Reuters) - Chinese shares clawed higher on Thursday after a two-week sell-off, giving a boost to Asian stock indexes and commodities even as many investors remained worried that the Shanghai slide may have more room to run.

European shares were set to build on the gains in Asia, with futures on the Dow Jones Eurostoxx 50 up 1.4 percent, while U.S. stock futures rose 0.5 percent.

The benchmark Shanghai Composite Index <.SSEC> jumped more than 4 percent, helped by reports that the stock regulator had approved new mutual funds this week to help underpin the market that has slid nearly 20 percent since hitting a 14-month high earlier in the month. [.HK]

The gains in another day of volatile trade helped give a lift to other regional shares that have been battered by sudden slumps in Shanghai this month.

Japan's Nikkei average <.N225> ended 1.8 percent higher, while the MSCI benchmark of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> gained 1.4 percent. Metals also got a lift, with copper prices recovering from a two-week low.

Shanghai's impact on global markets has surprised analysts because it is largely closed to foreign investors and its moves are sometimes due to murky local factors having little to do with corporate or economic fundamentals.

While some investors have seen the Shanghai slide as a worrying sign about the outlook for the Chinese economy -- among the strongest to power out of the global recession -- many China watchers have argued that investors should not read too much into daily swings. [ID:nSP486694]

The Shanghai index is still up more than 50 percent so far this year, despite falling some 20 percent in just two weeks.

Some market watchers suspect that state-owned companies may have shifted loans received earlier in the year -- tied to the more than $1 trillion of new bank lending in the first half of the year -- into stocks and now they are taking out those funds to put into stimulus-related projects.

"The more aggressively minded or cowboys were steering those funds into the market. Now that the more concrete projects are happening, we are starting to see that money rotate out...," said Michael Kurtz, chief China representative and head of China research at Macquarie Securities in Shanghai.

Jerry Lou, China equity strategist at Morgan Stanley in Hong Kong, said that Chinese authorities have also cracked down on the bank lending that had been funnelled into stock market speculation.

"That's what the government wants. They don't want an asset bubble to burst too early in the recovery and then they're out of cards," Lou said. "We're not seeing the start of a bear market. The fundamentals are too sound."

Hong Kong's Hang Seng index <.HSI> rose 1.9 percent along with the regional rebound.

In a sign that heavy share selling by short-term speculators -- or "hot money" -- may be calming down, the Hong Kong dollar recovered to near the upper end of its tight band against the U.S. dollar after hitting a two-month low on Wednesday.

Hefty fund inflows chasing the stock surge have kept the Hong Kong dollar pinned at the upper end of its band for much of the past five months.

Patrick Bennett, Asia FX and rates strategist at Societe Generale, said the fact that Chinese shares were having such a big influence on other markets felt like "intellectual piracy", but showed how edgy investors are on the global outlook.

WORRIES REMAIN

Gains in higher-yielding currencies were limited on worries that the volatile Chinese market was suffering a sharp bout of profit-taking that would resume before long. A further slide may prompt global investors to pull out of riskier assets in general.

The Australian dollar edged up 0.1 percent to $0.8308 despite the broad rise in stocks after having taken a hit from the sharp drop in Shanghai shares earlier this week. Against the low-yielding yen , the Aussie was up 0.5 percent.

The U.S. dollar index, a gauge of the greenback's performance against six major currencies, was flat at 78.475 <.DXY>.

Oil prices rose 27 cents a barrel to $72.69 after having surged more than 4 percent on Wednesday on data showing a sharp plunge in U.S. crude stockpiles, a jump that spilled over into shares of energy companies and helped push up the S&P 500 <.SPX> up 0.7 percent. [O/R]

Shares of Japanese oil and gas field developer Inpex <1605.T> were up 2.9 percent.

Safe-haven government bonds slipped as stocks attempted to stage a recovery.

Japanese government bond futures <2JGBv1> dipped 0.12 point to 138.75 after having pushed up to a five-month high in early trade. The five-year JGB yield edged up a basis point to 0.6550 percent after touching a four-year low the previous day. (Editing by Kim Coghill)