GLOBAL MARKETS-Asian shares extend losses, dollar underpinned by retail sales
* Asia shares fall, regional factors overshadow record Dow
* Nikkei bucks trend, adds 0.8 pct
* Dollar index near 7-mth highs hit after solid retail data
* South Korea and New Zealand keep rates steady
* European shares likely flat to slightly higher
TOKYO, March 14 (Reuters) - Asian shares extended losses on Thursday as regional factors outweighed the positive tone from another record Wall Street close, while the dollar index held near seven-month highs after strong retail sales bolstered the U.S. economic outlook.
European markets were seen opening cautiously near 4-1/2-year highs, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX expected to open flat to 0.2 percent higher.
Steady U.S. stock futures suggested a calm Wall Street start, after the Dow Jones Industrial Average marked another record close on Tuesday, its eighth straight day of rises and pushing it higher into overbought territory.
The MSCI's broadest index of Asia-Pacific shares outside Japan fell for a third straight session as a 1.3 percent slide in its materials sector dragged the whole index down 0.7 percent.
Resources-reliant Australian shares slumped 1.2 percent as sinking iron ore prices took a toll on miners, while fading expectations for an interest rate cut after a strong local employment data also dampened sentiment.
Hong Kong shares fell 0.4 percent, after giving up the last of their 2013 gains on Wednesday. Property developers retreated after two of the territory's leading banks raised mortgage rates for the first time since 2011. Shanghai shares were little changed.
Asia is seeing some breakdown in correlation with overseas markets, with regional bourses are being driven more by local factors, said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong.
"In the region, the focus rather is whether China would tighten more aggressively, political risks regarding North Korea or the response of policymakers in terms of currencies. Regional factors are gaining more importance," she said.
China's parliament formally elected heir-in-waiting Xi Jinping as the country's new president on Thursday, completing the country's second orderly political succession since the Communist Party took power in 1949.
Central bank governor Zhou Xiaochuan said on Wednesday that its stance had shifted to neutral from loose and that policy was now prudently set to rein in the risk of rising prices.
Cheung said Asian bourses remain on a broader uptrend, however, riding on a general diversion from cash to equities or from some selected bonds to equities.
Japan's Nikkei stock average bucked the regional downtrend to rise 0.8 percent.
Net inflows into the Japanese mutual fund market hit $11 billion in February, the largest monthly inflows in almost six years, while net foreign buying of Japanese stocks reached 1.1 trillion yen in the week to March 9, a record high since the Ministry of Finance began tracking the data in January 2005.
Domestic buying has driven some Southeast Asian equities to all-time highs this month, with the Philippines' main index up more than 16 percent so far this year.
POLICY IN FOCUS
Monetary policy direction remains diverse in Asia, with some central banks in easing mode while others remain watchful of inflation. The dollar's strength, which is capping gains for Asian currencies, may also be tempering Asian reaction to the solid U.S. economy.
South Korea's central bank held interest rates steady at 2.75 percent for a fifth straight month as it evaluated economic conditions overseas and heightened tensions with North Korea. South Korean shares eased 0.3 percent.
"Expectations for government stimulus have turned into disappointment after today's rate decision," said Oh Hyun-seok, a market analyst at Samsung Securities.
The Australian dollar jumped to a five-week high of $1.0383 after data showed the country's employment topped estimates and soared by the biggest increase in over a decade.
In New Zealand, the central bank held its key interest rate at a record low 2.5 percent for a 16th straight meeting, while suggesting that in some circumstances a cut might be possible.
The U.S. government reported retail sales grew 1.1 percent in February, the fastest rise since September, lifting the dollar index to 83.055 on Wednesday, its highest since Aug. 3.
"Over the last few weeks, markets mainly focused on commodity-specific fundamentals which still paint a rather cautious picture," Credit Suisse said in a note.
"However, the focus is likely to shift back to the bigger economic picture. Given gradual improvements in economic activity, we think commodity prices have some recovery potential."
The dollar was trading at 95.98 yen, below Tuesday's high of 96.71 yen, its peak since August 2009.
The euro was at 124.26 yen, retreating from a one-month high of 126.03 reached on Tuesday. Against the dollar, it hovered near Wednesday's three-month low of $1.2923.
After Italy's lukewarm bond auction on Wednesday, investors will turn to a Spanish bond sale scheduled later in the day, with Madrid offering debt maturing in 2029, 2040 and 2041.
Crude oil eased 0.3 percent to $92.22 a barrel while Brent eased 0.1 percent to $108.40.
More signs of U.S. economic strength capped spot gold below $1,590 an ounce.
"As long as the U.S economy is coming back we do not think gold prices can rise," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.