* MSCI Asia ex-Japan edges higher as Nikkei rebounds
* Commodities weighed by stronger dollar, demand outlook
* US, UK markets to resume trade after holidays on Monday
By Chikako Mogi
TOKYO, May 28 (Reuters) - Japanese stocks strengthened as Asian shares edged higher on Tuesday, although investors were still awaiting direction from U.S. and U.K. markets when they resume trade after holidays on Monday, following last week's turbulence.
The Nikkei stock average jumped 1.4 percent, swinging from a 1.4 percent drop at the open which came on top of Monday's 3.2 percent tumble. The Nikkei average dropped 7.3 percent on Thursday, its largest single-day loss since the March 2011 earthquake and tsunami.
"The Nikkei is currently at fair value and it is not expensive compared to U.S. stocks in terms of price/earnings ratio, so the recent volatility and declines actually created a dip-buying chance," said Tetsuro Ii, chief executive of Commons Asset Management.
Firmer Japanese shares spurred yen selling, easing investor concerns about having to unwind their yen-selling positions to cover losses.
"Nikkei's trading range is narrowing down day by day. This is not like a panic we saw after the Lehman shock. If volatility is steadying at the current level, then the dollar/yen is likely to head higher," said Kyosuke Suzuki, director of FX at Societe Generale in Tokyo.
The dollar climbed 0.9 percent against the yen to 101.86 after falling to a two-week low of 100.66 yen on Friday, having hit a 4-1/2 year peak of 103.74 yen only a few days earlier on May 22.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent at 468.44, holding above Friday's five-week low of 464.99.
Australian shares and South Korean shares each rose 0.4 percent. Hong Kong shares were up 0.1 percent while Shanghai shares inched up 0.2 percent.
With few offshore leads, Australian investors continued to favour the yield play from strong dividends despite the recent sell-off, said Andrew Quin, research strategy coordinator at Patersons Securities in Perth.
"With foreign investors selling out because of Australian dollar risk, it's creating an opportunity for Australian investors to pick up good and top-level yielding companies again," Quin said.
Equity, bond and currency markets were vexed last week by talk the U.S. Federal Reserve could scale back its super-loose monetary policy, kept in place for the past five years and underpinning global financial markets, sooner than had been expected.
"It is natural for markets to react to suggestions that there may be a change in the Fed's policy stance which had defined a trend in markets for the last five years, and try to assess the magnitude of the impact if the change really takes place," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Saito added that seasonal factors such as hedge funds closing their books in May and June have also exaggerated corrective moves as they hastened to adjust their positions.
"Markets are now seeking levels to stabilise, but players are likely to wait for cues from U.S. markets when they resume trade after Monday's holiday," he said.
Fed Chairman Ben Bernanke said last week that a decision to scale back the $85 billion in bonds the Fed buys each month could be taken at one of the central bank's "next few meetings" if the economy looked set to maintain momentum.
Yuuki Sakurai, president of Fukoku Capital Management Inc in Tokyo, said Bernanke was simply stating the obvious and didn't signal an imminent end to the Fed's excessively accommodative stance.
"Bernanke's comments put a counter-balancing 'pessimism' to overly optimistic markets, while Japanese equities have come to terms with the real economy which is still fragile," he said.
Commodities were pressured by an uncertain demand outlook after data last week showed China's factory activity declined in May for the first time in seven months and U.S. manufacturing grew at its slowest pace since October. The dollar's strength also weighed on dollar-based commodities as the rising dollar makes them more expensive for non-dollar holders.
U.S. crude futures shed 0.6 percent to $93.61 a barrel and Brent eased 0.1 percent to $102.50.
"Oil demand from China could be depressed as China's PMI contracted for the first time in seven months and we are unlikely to see any aggressive stimulus from policymakers in the short-term," said Chen Hoay Lee, an investment analyst at Phillip Futures in Singapore.
London copper fell 0.8 percent to $7,242.75 a tonne.
Spot gold fell 0.3 percent to $1,390 an ounce.