* European shares seen opening down, on track to snap winning steak
* Spike in China's short-term rates underscores tightening fears
* Nikkei tumbles 2 percent, reversing rise as yen jumps against dollar
* Fed tapering expectations pushed to next year after payrolls disappoint
* U.S. 10-year Treasury yield wallows at lowest levels since July
TOKYO, Oct 23 (Reuters) - Asian stock markets surrendered early gains on Wednesday on fears of tighter policy in China, while the dollar dropped after tepid U.S. jobs data vanquished expectations that the Federal Reserve will taper its stimulus before next year.
European markets were tipped to open lower and could snap their nine-session winning streak.
Financial spreadbetters predicted Britain's FTSE 100 will open 15 to 23 points lower, or as much as 0.3 percent; Germany's DAX will open 13 to 27 points lower, also down as much as 0.3 percent; and France's CAC 40 will open 12 to 22 points lower, or as much as 0.6 percent.
U.S. S&P 500 E-mini futures were down 0.3 percent, after the S&P 500 Index closed at a record high in New York on Tuesday.
Japan's Nikkei share average ended down 2 percent as a stronger yen took a heavy toll, after shares touched a 3-1/2 week high in the morning session.
Australian shares shed 0.3 percent after scaling a five-year peak, dragged down by stronger-than-expected inflation data which reduced expectations for another interest rate cut.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, on track to post its first loss in five sessions, while profit-taking pushed Seoul shares off their highest level in more than 26 months.
"A story that Chinese banks have tripled debt write-offs in the first half of this year appears to have prompted some profit taking with Asia markets near multi-week highs," Michael Hewson, chief market analyst at CMC Markets UK, wrote in a research note.
A rise in China's short-term money rates also underscored investors' fears that regulators there are poised to tighten liquidity to quell growing inflationary pressures. 1/8ID:nL3N0ID0XN 3/4
The benchmark seven-day repo contract, which had been steadily sliding since Oct. 9, spiked in the morning session, a day after a policy adviser to the People's Bank of China (PBOC) told Reuters that the authority may tighten cash conditions in the financial system to address inflation risks.
Most Asian markets had firmed in early trade, tracking Wall Street gains as the weak jobs report reinforced expectations that the Fed will maintain its aggressive stimulus well into next year.
The report showed nonfarm payrolls increased by 148,000 workers in September, less than expected.
It suggested the economy was losing momentum even before the U.S. fiscal standoff that partially shut down the government for more than two weeks, lending credence to the central bank's decision to hold off on reducing its stimulus.
Strategists at Barclays pushed out their expectation for the first Fed tapering in the pace of its asset purchases to March 2014 from December 2013, and many market participants concurred.
Nine of 15 U.S. primary dealers surveyed by Reuters on Tuesday expect the Fed to begin tapering its $85 billion-a-month bond-buying programme in March.
DOLLAR UNDER PRESSURE
The dollar tumbled 0.7 percent against its Japanese counterpart to 97.40 yen, after as low as 97.25 yen earlier, its lowest since Oct. 9.
The euro was slightly down at $1.3773, after rising as high as $1.3793 on the EBS trading platform, its strongest since Nov. 2011.
In the near-term, the dollar could see further weakness against other major currencies such as the euro and sterling, said Sim Moh Siong, FX strategist for Bank of Singapore, adding that the euro may rise towards levels around $1.39.
"I think there's certainly a high possibility that dollar weakness might extend a bit further, but I'm not really sure that it changes the medium-term dollar picture," Sim said.
The dollar index last stood at 79.217, after it fell to its weakest in eight months at 79.137 earlier, within sight of its 2013 low of 78.918 touched in February.
The Australian dollar was last down 0.6 percent against its U.S. counterpart in a whipsaw session that saw it jump about a quarter of a U.S. cent after the CPI report.
The yield on benchmark 10-year Treasury notes fell to 2.492 percent, its lowest since late July, after closing U.S. trade at 2.512 percent.
That helped push the yield on the 10-year Japanese government bond to a five-month low of 0.600 percent.
On the commodities front, concerns about a near-term U.S. crude surplus helped push U.S. crude prices down about 0.5 percent to $97.82 a barrel. Brent crude gave up 0.3 percent to $109.70 a barrel, supported by a weaker dollar.
Copper slipped from near one-month highs as traders booked profits after the U.S. jobs report reinforced the metal's weak fundamental outlook, falling 1.0 percent to $7,261.75.
Gold fell 0.2 percent lower to $1,336.51 an ounce, having risen to a four-week high after the payrolls data.