By Louise Heavens

SINGAPORE (Reuters) - Stocks recovered earlier losses on Monday, with Japan rebounding as the yen fell against the dollar and boosted exporters, and Sydney rising 1 percent on optimism over a potential bank takeover.

But European markets were on course for a lacklustre open, with financial bookmakers calling the FTSE 100 .FTSE down slightly, and France's CAC .FCHI and Germany's DAX .GDAXI up marginally.

Tokyo's recovery sent Japanese government bonds lower, but Treasuries edged higher after news on Friday that American International Group (AIG.N: Quote, Profile, Research), the world's biggest insurer, posted its largest ever quarterly loss. The news revived fears about financial institutions' exposure to the credit crisis.

The dollar rose against other regional currencies as weak Australian and New Zealand economic data signalled the fallout from the credit crisis was continuing to spread globally.

A slight retreat in the price of crude from record peaks above $126 a barrel also helped sentiment.

Tokyo .N225 ended 0.6 percent higher as exporters such as Canon (7751.T: Quote, Profile, Research) recovered as the yen retreated, easing a potential squeeze on profits. The Nikkei 225 had lost nearly 1 percent in early trade.

Shares across the rest of Asia .MIAPJ0000PUS were up 0.2 by 6:59 a.m. BST. The benchmark is down just more than 8 percent so far this year, but had rallied sharply in March after it had fallen to its worst level since August 2007 with the collapse of U.S. investment bank Bear Stearns.

Singapore's main index .FTSTI was up 0.3 percent and Taiwan's index .TWII ended 0.4 percent better.