(Repeating to fix formatting)
* Dollar demand seen strong from Japanese funds
* U.S. Treasuries firm on extended rate pause bets
* Silver takes a beating after CME margin hike
* Nikkei down about 1 percent, KOSPI hovers below record high
By Saikat Chatterjee
HONG KONG, April 26 (Reuters) - The euro retreated on Tuesday, though losses are seen as limited, while Asian shares pulled back from recent three-year peaks before this week's Federal Reserve meeting where investors will hunt for clues on when it plans to exit ultra-easy monetary policy.
Commodity prices too succumbed to a bout of profit-taking after silver fell more than 1 percent when it failed to break key technical resistance levels. Analysts said the sell-off spilled over into other commodities including oil, despite violent protests in Syria.
The single currency took a knocking after European Central Bank Governor Jean-Claude Trichet said he shares the view that a strong dollar is in the interest of United States, though the prospects of widening interest rate differentials between the Fed and the ECB may check losses.[ID:nEBE7DA00T]
"I don't take it lightly that Trichet is talking about the dollar rather than the euro. European policymakers became alarmed when the euro rose above $1.45 in 2007 and they started to rein in the dollar's fall," said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that policymakers globally are increasingly worried about the dollar's fall.
Equity markets across the region were largely subdued with Japan's Nikkei down about one percent. Shares outside Japan , which last month hit their highest level since early 2008, were down about 0.5.
Credit markets too reflected the overall cautious sentiment with credit spreads widening slightly as the broader market was wary of a heavy pipeline after a recent flood of issuances.
Issuance of dollar-, euro- and yen-denominated bonds from Asia ex-Japan have already exceeded $30 billion year-to-date, clearly ahead of the pace set in 2010, which saw record issuance of more than $83 billion.
AND THE WINNER THIS MONTH IS..
South Korea's KOSPI dipped slightly after hitting yet another record high earlier, though it is set to outperform regional indices in a big way this month.
The KOSPI's more than 5 percent rise in April has been led by automakers and chipmakers with the former benefiting from the production hit suffered by Japanese competitors in the wake of last month's earthquake and tsunami and the latter getting a boost from strong earnings by Intel and Apple.
That has attracted chunky offshore flows. Foreign investors were buyers of a net 124.2 billion won ($114.9 million) worth of stocks on Monday, purchasing for a fourth straight session.
EXTENDED PAUSE
In currency markets, the greenback came under a bit of selling pressure versus the yen in early trade but losses were limited on expected dollar demand from Japanese asset management firms as a number of investment trusts, or toushin, are due to be launched on Tuesday.
Trade was volatile as investors were reluctant to make big bets before the April 26-27 Federal Open Market Committee meeting while rate markets reflected that any tightening measure was going to be a long slow grind.
In fed fund futures markets <0#FF:>, the contract expiring in December 2011 has fully priced in a target interest rate of 0.25 percent, the top end of the central bank's current rate range of zero to 0.25 percent but the January 2012 contract only implied a slim 6 percent chance of another hike to 0.5 percent.
Such bets of a slow increases in rates have kept traders interested in buying U.S. Treasuries, pushing the 10-year U.S. yield down more than 20 basis points from this month's highs of 3.36 percent, despite a recent outlook downgrade by ratings agency Standard & Poor's.
Silver, which has nearly doubled from the January lows, fell after the CME raised COMEX 5000 Silver <0#SI:> maintenance margins for speculators by nearly 10 percent.[ID:nL3E7FP2EW]
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http://blogs.reuters.com/hedgehub (Additional reporting by Haruya Ida, Hideyuki Sano in TOKYO and Umesh Desai; Editing by Richard Borsuk)