GLOBAL MARKETS-Asian shares hit 18-month high on growth hopes
* MSCI Asia ex-Japan rises to highest since Aug 2011
* Nikkei hits 52-month high
* Japan logs biggest-ever monthly trade deficit in January
* Yen jittery, eyes BOJ governorship tussle
TOKYO, Feb 20 (Reuters) - Asian shares rose to their highest since August 2011 on Wednesday after an improving global economic outlook boosted world equities overnight, encouraging investors to take on risk.
The MSCI's broadest index of Asia-Pacific shares outside Japan added 0.7 percent, rose for a third day in a row, led by a 1.7 percent gain in its technology sector . The index has risen 4 percent so far this year.
Asian shares have been on an uptrend as risks from the euro zone debt crisis the U.S. fiscal crisis abated and signs of tepid recovery emerged in major economies including China. Corporate earnings have also been generally positive.
"A shift to cyclicals from defensives has come to a full circle and investors are now looking at sector-specific factors within an asset class, selecting those with a tight supply/demand outlook," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory.
News of possible fresh mergers boosted U.S. stocks on Tuesday, pinning the benchmark Standard & Poor's 500 Index near a five-year high, while a stronger-than-expected rise in the German ZEW investor sentiment index to a three-year high supported European stocks.
Australian shares rose 0.4 percent, extending a rally that has taken the market to 4-1/2 year highs, with financials and retailers supporting prices. The Australian market has risen nearly 10 percent this year.
"There's a few good earnings reports but I think it's this hunt for yield that continues to push our market higher," Weston said. "I think that's keeping the support; the market doesn't want to go down and you just don't want to be missing out."
South Korean shares outperformed with a 1.5 percent jump to hit a one-month high, as foreigners stepped up buying and a pause in the yen's falling trend soothed sentiment.
"The KOSPI had decoupled with global equities in January because of currency moves and foreign selling. But this is changing with the pace of currency changes easing," Shawn Oh, an analyst at Daishin Securities, said of Seoul shares.
Positive growth in Southeast Asia has drawn foreign investors, keeping regional stocks robust. The Philippines stock market extended gains to a record high while Bangkok's SET index hit a fresh 18-year high.
The rise in equities weighed on assets perceived as safe-haven, such U.S. Treasuries and gold on Tuesday. Spot gold inched up 0.2 percent to $1,607.94 an ounce, but hovered near a six-month low hit the day before.
London copper climbed 0.6 percent to $8,095 a tonne, off Tuesday's three-week lows.
Tokyo's Nikkei stock average added 0.7 percent, after touching a 52-month high.
The yen remained jittery, swinging in narrow ranges on concerns Japan may not be able to pursue as strong a reflationary policy mix as previously thought.
A week-long delay in the government nominating a new Bank of Japan governor fuelled talk of friction between the prime minister and the finance minister over who should run a central bank charged with taking bold action to reignite the economy.
The dollar eased 0.1 percent to 93.49 yen, still near its highest since May 2010 of 94.465 hit on Feb. 11. The euro was up 0.1 percent to 125.36 yen. It touched a peak since April 2010 of 127.71 yen on Feb. 6.
Sterling was under pressure on growing speculation the UK could soon lose its prized triple-A credit rating. Sterling traded at $1.5444, having plumbed a seven-month low at $1.5414 in New York.
"Markets continued to consolidate while reallocation trades helped risky assets to outperform and the USD to come under some pressure," said Sebastien Galy, strategist at Societe Generale, said in a note to clients.
"Fears regarding the UK are steadily rising, reinforcing a bearish tendency...We remain short GBP, CHF, JPY and AUD," he said, adding that the market will use any bearish excuse to sell the yen.
Japan logged its biggest monthly trade deficit on record in January, underscoring the country's deteriorating trade balances and accenting the yen's weak fundamental trend.
Investors remained wary of the possible U.S. federal spending cuts and outcome of the upcoming Italian election, limiting losses in sovereign bonds.
The ZEW report was a positive sign ahead of the more important euro zone flash PMIs on Thursday and Germany's IFO business sentiment on Friday, said Vassili Serebriakov, a strategist at BNP Paribas.
U.S. crude steadied around $96.70 a barrel but Brent eased 0.2 percent to $117.34.