(Corrects currency in paragraph 4 to yuan from yen)
* Nikkei down 0.6 pct, ex-Japan Asia slips 0.1 pct
* Valuations hardly cheap, on part with levels seen early Oct
* Investors look to China congress amid mounting economic problems
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Hideyuki Sano
TOKYO, March 5 (Reuters) - Asian shares stepped back on Tuesday after China cut its economic growth target and pledged measures to support the economy amid growing challenges from rising debt and a dispute over trade and technology with the United States.
Australian shares .AXJO dropped 0.6 percent while South Korea's Kospi .KS11 lost 0.5 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.2 percent and Japan's Nikkei .N225 dropped 0.3 percent.
China cut its growth target for this year to 6.0 to 6.5 percent, in line with expectations, from around 6.5 percent last year. Li Keqiang also said the country sees a budget deficit of 2.8 percent of GDP and the Finance Ministry set the quota for local government's special bond issues at 2.15 trillion yuan, 0.8 trillion yuan above last year's quota. increase in local governments' special bond is fairly large," said Naoto Saito, chief researcher at Daiwa Institute of Research.
"Since those funds will be solely used for infrastructure investments, you cannot avoid the impression that the government is relying on investments to support the economy in the short-term rather than de-leveraging. This could cause problems in the longer term."
Wall Street's major indexes fell on Monday, with the Dow Jones Industrial Average .DJI shedding 0.79 percent and the S&P 500 .SPX losing 0.39 percent.
An unexpected fall in U.S. construction spending, data that normally attracts little attention, was cited as a factor. others saw the retreat as a long overdue correction after a rally since late last year.
MSCI's World index, .MIWO00000PUS , a gauge of 23 developed markets, has risen 16.6 percent from its near two-year low set on Dec. 26 low, even as the earnings outlook stagnated, driven by hopes of a dovish Fed and a compromise between Beijing and Washington on trade.
The index is now trading at 14.6 times expected earnings, the highest level since early October, when a bear market began globally.
Thus a media report on Monday that U.S. President Donald Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27 prompted profit-taking rather than follow-through buying. 10-year U.S. Treasuries yield dropped to 2.724 percent US10YT=RR after touching from six-week highs of 2.768 percent in the past two sessions.
In currency markets, the dollar held an upper hand against many of its rivals as other major central banks are seen tilting to a more dovish stance than the Federal Reserve.
The euro fetched $1.1339 EUR= , having dropped 0.25 percent on Monday, amid expectations the European Central Bank is preparing to give banks more cheap, long-term funding at its policy meeting on Thursday. dollar traded at 111.75 yen JPY= , off a 10-week high of 112.08 on Friday.
Gold XAU= has fallen for four days in a row by Monday to as low as $1,283.10 per ounce, its lowest level since Jan. 25. It last stood at $1,286.6. Silver hit two-month lows of $15.0725 per ounce XAG= .
Oil prices held firm after OPEC ally Russia said it would ramp up supply cuts.
U.S. crude futures CLc1 stood at $56.41 per barrel, down 0.3 percent in early Asia but still up 1 percent on the week. (Editing by Sam Holmes)