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GLOBAL MARKETS-Sterling retreats after Manchester blast, euro steady, stocks advance

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* Sterling falls as police treat Manchester blast as terror attack

* Euro hovers near 6-mth high after Merkel says it's "too weak"

* Asia stocks steady after strong Monday gains, Wall Street rise

* Dollar slips on U.S. political uncertainty

* U.S. oil reserve sale proposal in budget plan weighs on crude

SINGAPORE, May 23 (Reuters) - Sterling extended losses on Tuesday after a suspected terrorist attack killed at least 19 people and wounded 50 at a pop concert in the English city of Manchester, while the euro held gains made after German Chancellor Angela Merkel said the currency was "too weak."

The explosion, at a concert by U.S. singer Arianna Grande, took place just two-and-a-half weeks before an election that Prime Minister Theresa May is expected to win easily, though polls showing that the contest was tightening added to sterling's woes.

The currency eased 0.1 percent to $1.299, extending Monday's 0.3 percent loss.

The pound dropped 0.2 percent to 144.40 yen, after losing 0.2 percent on Monday.

If the blast is confirmed as a terrorist incident, this would be the deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London's transport system in July 2005.

The impact on other areas of the market was limited, with Britain's FTSE futures up 0.1 percent, while S&P E-mini futures slipped 0.1 percent.

"We could see a bout of nervousness re: the terror threat, but it's likely to be minor," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "Ever since 9/11, the impact on markets from terrorist events has been declining."

The euro hit a six-month high overnight after Merkel said the currency, made "too weak" by the European Central Bank's monetary policy, helped explain Germany's relatively high trade surplus.

The common currency edged up 0.1 percent to $1.1251 after jumping as much as 0.5 percent and closing 0.3 percent higher on Monday.

"The thing with euro/dollar is that you have quite a positive mood on the euro at the moment," said ABN Amro foreign exchange strategist Georgette Boele. "And when Merkel makes comments that the euro is probably too low then this is taken as another positive reason to push it higher."

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent on Tuesday to be near its highest level since June 2015.

Japan's Nikkei slipped 0.1 percent.

Korean shares surged 0.9 percent to an all-time high.

Chinese shares reversed earlier losses and were up 0.4 percent.

Hong Kong's Hang Seng rose 0.3 percent to its highest level since July 2015.

Overnight, Wall Street closed as much as 0.8 percent higher, driven by defense and technology stocks, after U.S. President Donald Trump announced arms deals and other investments with Saudi Arabia over the weekend that Secretary of State Rex Tillerson said could add up to $350 billion.

An uncertain political climate in the U.S. continued to weigh on the dollar, but a slowdown in Japanese manufacturing activity limited losses versus the yen.

The dollar was slightly lower at 111.20 yen.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, was 0.1 percent lower at 96.916.

Losses were also kept in check by a gauge of U.S. economic activity that improved in April to its highest level since late 2014, suggesting an acceleration in production and hiring activity following an anemic first quarter.

The White House is set to deliver Trump's first full budget to lawmakers on Tuesday, a plan that would cut $3.6 trillion in government spending over 10 years, balancing the budget by the end of the decade.

Presidential budgets are often ignored by Congress, which controls federal purse strings.

But the budget plan, which proposed the sale of half the country's strategic oil reserves, weighed on crude futures, offsetting optimism over expectations that other major oil producers would agree to extend supply curbs this week.

Global benchmark Brent retreated 0.3 percent to$53.68.

U.S. crude futures surrendered some gains but were 0.4 percent higher at $50.93, after hitting their highest level in more than a month earlier in the session.

The weaker dollar lifted gold slightly. Spot gold climbed 0.15 percent to $1,262.10 an ounce in its third straight session of gains. (Reporting by Nichola Saminather; Additional reporting by Marc Jones; Editing by Simon Cameron-Moore and Richard Borsuk)