GLOBAL MARKETS-China shares extend bear slump, pull down rest of Asia
* MSCI Asia ex-Japan slips 0.8 pct, Nikkei turns negative, down 1.2 pct
* Markets fears China cash squeeze could damage economy
* Dollar takes break as Fed officials downplay view of stimulus end
TOKYO, June 25 (Reuters) - Chinese shares sank deeper into bear market territory on Tuesday, pulling down most other Asian stock markets, as worries spread that tight liquidity could threaten China's economic growth and take the shine off an emerging U.S. recovery.
Commodities also fell, with copper hovering near a three-year low, on fears of weaker Chinese demand.
At 0325 GMT, the CSI300 of the leading Shanghai and Shenzhen listings was down 4.5 percent at its lowest since February 2009. The Shanghai Composite Index slid 3.8 percent to its lowest since January 2009.
Tuesday's losses came despite China's money market rates easing for a third-straight session. The benchmark seven-day repo rate opened at 5.73 percent, down from 7.53 percent at Monday's close and an all-time high of 11.62 percent on Thursday.
China's weighted average overnight bond repurchase rate , a measure of the cost of funds, eased further to more normal levels of 5.72 percent, from double-digit levels in recent sessions.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.8 percent, extending Monday's 1.8 percent slide to hit an 11-month low.
Japan's Nikkei stock average gave up early gains to fall 1.3 percent.
"Heightened concerns about China's growth and financial market risks are still keeping investors at bay," said Bae Sung-young, a market analyst at Hyundai Securities.
China shares suffered their worst daily loss in almost four years on Monday as the authorities showed more determination to curb the risks of shadow banking, rather than accommodating the money market, raising fears of a potential credit squeeze.
Hong Kong's Hang Seng Index erased earlier gains as Shanghai shares extended their slide, falling 1.1 percent after closing below the 20,000-point mark for the first time since Sept. 11 on Monday.
The Shanghai financial sub-index plunged 5.2 percent after skidding 7.3 percent on Monday in its worst day since November 2008 - during the financial crisis that started that year.
Australian shares eased 0.3 percent and South Korean shares fell 0.7 percent.
Asian credit markets showed investor risk aversion remained relatively high, even with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing three basis points. The spread had spiked 20 bps on Monday, reflecting the rising cost of hedging against debt defaults.
Monday's sell-off sent most of the region's stock indexes well into oversold territory, with investor sentiment already weak after the U.S. Federal Reserve said last week it would soon scale back its stimulus.
DOLLAR TAKES BREAK
Less than a week after the Fed set off a global market sell-off by announcing its plan to end stimulus, two Fed leaders - Minneapolis Fed President Narayana Kocherlakota and the head of the Dallas Fed Richard Fisher - downplayed an imminent end to monetary stimulus on Monday and said the acute market reaction was not yet cause for concern.
The dollar's rally slowed on the comments. It has been gaining on rising U.S. yields and the prospect of an improving U.S. economy that enabled the Fed to disclose its goal of cutting back the bond-buying that had channeled abundant funds to global markets and underpinned the prices of riskier assets such as shares.
The dollar index, measured against a basket of major currencies, was steady around 82.436, after rising to a three-week high of 82.841 on Monday.
The shift out of assets that have benefited most from cheap money has been sharpest in the U.S. debt market, where yields on 10-year Treasury notes at one point spiked to a two-year high of 2.67 percent but dipped to 2.55 percent on Monday on recovering bond prices, which move in opposite direction to yields.
U.S. Treasuries were steady in Asia on Tuesday.
U.S. equities slumped but recovered some losses on the rise in Treasury bond prices, while the pan-European FTSEurofirst 300 index closed at a seven-month low on Monday. The Euro STOXX 50 Volatility index hit a nine-month high, reflecting a sharp rise in risk aversion among investors.
U.S. crude futures were down 0.3 percent at $94.88 a barrel while Brent inched down 0.1 percent to $101.10.
Three-month copper on the London Metal Exchange slipped to $6,660.00 by 0307 GMT, down $10. Copper fell as much as 3 percent to $6,613 on Monday, its weakest since July 2010.
China accounts for around 40 percent of global refined copper demand.