GLOBAL MARKETS-China rebound drives Asian shares higher

* MSCI Asia ex-Japan +0.3 pct, reverses earlier losses

* European markets set for mixed open

* China blue-chips post best week since 2015

* Aussie dollar rebounds as officials seek to reassure investors

* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Andrew Galbraith

SHANGHAI, Feb 22 (Reuters) - Shares in Asia recouped early losses on Friday, buoyed by strong gains in China as signs of progress in trade talks with the United States offset worries about a deteriorating global economic outlook.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.3 percent higher by mid-afternoon, having spent the day dipping in and out of negative territory.

Spread-betters CMC Markets expect an uneven performance in Europe, with London's FTSE seen up 0.1 percent at the open, Frankfurt's DAX down 0.1 percent and Paris' CAC down 0.2 percent.

Chinese shares rallied in the afternoon after a tentative start as optimism over trade talks reasserted itself, pushing the blue-chip index 2.2 percent higher. For the week, the it gained 5.4 percent, its strongest week since November 2015.

China stocks had faltered earlier on investor concerns over slowing domestic growth and on indications that Chinese authorities will resort to a benchmark lending rate cut only as a last resort to boost the economy.

Growth in China's new home prices fell to a nine-month low in January as broader economic weakness increasingly weighs on the property sector and consumer confidence.

Japan's Nikkei ended 0.2 percent lower after data showed core consumer inflation accelerated slightly in January but remained far from the central bank's 2 percent target, underscoring the fragility of the country's economic recovery.

Australian shares gained 0.5 percent and Seoul's Kospi reversed earlier losses to end up 0.1 percent.

A combination of trade talks and Federal Reserve caution over further rate hikes has provided support to riskier assets, including equities, in recent sessions, said Rob Carnell, chief economist and head of research, Asia-Pacific at ING.

But with a more dovish Fed and some sort of trade deal already priced in, further developments on trade "haven't really been having anything like the impact in markets that they would have done a week or a couple weeks or months ago," he said.

Nevertheless, investors continue to closely watch high-level talks between U.S. and Chinese trade negotiators in Washington, with little more than a week left before a U.S.-imposed deadline for an agreement expires, triggering higher tariffs.

Reuters reported exclusively on Wednesday that the two sides were drafting language for six memorandums of understanding on proposed Chinese reforms, progress that had helped to lift investor sentiment.

Chinese Vice Premier Liu He will meet with U.S. President Donald Trump at the White House on Friday, the White House said.

Amid the trade discussions, new data from the U.S. Thursday highlighted its economic outlook is also growing cloudy.

The U.S. Commerce Department said on Thursday that domestic orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7 percent.

Moreover, the U.S. Mid-Atlantic factory sector fell into contraction territory in February for the first time since May 2016, data from the Philadelphia Federal Reserve showed.

"While global manufacturing is weak, services activity is looking more positive. But it is difficult to see manufacturing and services diverging for long," analysts at ANZ said in a morning note.

"There are strong multiplier effects from manufacturing that imply downside risks to the services sector, particularly in Europe. And trade uncertainty, which is overhanging the manufacturing sector, needs to be resolved."

The yield on benchmark 10-year Treasury notes edged lower to 2.6824 percent Friday, compared with a U.S. close of 2.688 percent on Thursday as a bump from investor optimism about trade talks progress ebbed.

The two-year yield, watched as a gauge of expectations of higher Fed fund rates, eased to 2.5204 percent from a U.S. close of 2.529 percent.

AUSSIE REBOUND

The Australian dollar rebounded after tumbling more than 1 percent on Thursday on a Reuters report that China's northern port of Dalian has placed an indefinite ban on imports of Australian coal.

On Friday, Reserve Bank of Australia Governor Philip Lowe cautioned against seeing restrictions as being directed at Australia, and Prime Minister Scott Morrison said the ban does not point to a souring of ties between the countries.

Separate comments by Lowe that a rate hike may be appropriate next year also helped to boost the Aussie dollar.

It was last up 0.2 percent at $0.71025.

The U.S. dollar edged up against the yen to 110.76, while the euro gained less than 0.1 percent to buy $1.1342.

The dollar index, which tracks the greenback against a basket of six major rivals, was steady at 96.611.

U.S. crude turned around from small declines to rise 0.1 percent to $57.01 a barrel. Brent crude was nearly unchanged at $67.09.

Gold rebounded after falling more than 1 percent on Thursday, with spot gold trading up about 0.2 percent at $1,325.16 per ounce.

(Reporting by Andrew Galbraith; Additional reporting by Richard Leong in NEW YORK; Editing by Richard Borsuk & Kim Coghill)