* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* MSCI ex-Japan slightly weaker; Australia, South Korea open lower
* MSCI ex-Japan fell 1% last week after 5 straight weekly gains
* Chinese Q2 GDP due 0200 GMT, consensus 6.2% y/y growth
* Morgan Stanley (NYSE:MS) says re-enters short USD/JPY trade
By Swati Pandey
SYDNEY, July 15 (Reuters) - Asian shares started the week on a softer note on Monday after posting their first weekly decline since early June, while the dollar was on the defensive ahead of key economic data from China.
Trading was expected to be light as Japan was shut for a public holiday.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was a shade lower at 524.9 points. It fell a little more than 1% last week, snapping five straight weeks of gains.
Australian shares .AXJO slipped 0.8% while South Korea's KOSPI .KS11 inched 0.3% lower.
Markets will be focussed on Chinese gross domestic product data due at 0200 GMT, where analysts expect second-quarter growth to have slowed to 6.2% from a year earlier - the weakest annual pace since early 1992. disappointing number would add to worries about slowing global growth and reinforce the case for more stimulus by Chinese authorities as a damaging trade war with the United States rages on.
Alongside GDP, China will also publish activity data for June including retail sales, industrial production and urban investment, which could give more clues on whether earlier support measures are starting to kick in, or if more policy easing is needed.
"The gloom hanging over China's economy is unlikely to go away soon due to challenges on both domestic and external fronts," ANZ analysts said.
"To stabilise growth, the People's Bank of China (PBoC) will maintain an accommodative bias for the rest of the year, in our view."
Later in the week, U.S. retail sales and industrial production data will provide more clues about the health of the world's largest economy. The U.S. Federal Reserve will release its 'Beige Book' on Wednesday which investors will scour for comments on how trade tensions were affecting business outlook.
In currency markets, the greenback .DXY was flat at 97.818 against a basket of major currencies.
The dollar index fell for three days in a row as markets fully priced in the chance of a 25-basis-point (bps) cut to U.S. interest rates. There is also a small probability of a 50 bps cut.
Against the Japanese yen JPY= , the dollar languished near the lowest since early June at 107.81 while the single currency EUR= was mostly unchanged at $1.1271 after three successive sessions of gains.
Expectations that the Fed will keep rates supportive have sent bonds rallying with ten-year U.S. Treasuries US10YT=RR below the current Fed rate range of 2.25%-2.50%. 0#FF:
"Dovish Fed rhetoric has rendered a July rate cut, in the market's eyes, as a fait accompli: it's not if they cut but by how much," Morgan Stanley strategist Hans Redekar told clients in a note.
Redekar said the bank was re-entering its short dollar/long yen position.
"If markets are disappointed, the yield curve would likely flatten, the USD strengthen, and financial conditions tighten. These forces would exacerbate the already considerable headwinds facing the global economy," he added.
"Global reflation requires a weaker USD to bolster global trade and commodity prices."
Worries about world growth and low inflation has meant investors are piling money onto bonds and money market funds, Jefferies said, citing its global asset fund flows tracker.
"The danger is that with a mountain of cash parked in money market funds any trade ceasefire would cause a huge shift away from safe assets," said Sean Darby, Jefferies' global equity strategist.
"Presently, investors don't seem to be in any particular rush to buy equities – earnings revisions have yet to bottom out while economic surprises have been rare," he added.
"The bottom line is that we would issue a pause on the risk rally."
In commodities, U.S. crude CLc1 fell 6 cents to $60.15 a barrel. Brent crude LCOc1 was off 7 cents at $66.65.
Gold XAU= was a touch higher at 1,416.14 an ounce, not far from a recent six-year top of $1,438.60.
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