* Nikkei rises 1.4 pct in early trade as yen eases
* Dollar keeps gains ahead of Fed chief testimony
* Week ahead packed with data, political risk
By Wayne Cole
SYDNEY, Feb 26 (Reuters) - Asian markets were in a guardedly upbeat mood on Monday, heading into an event-packed week headlined by U.S. inflation data and the first House testimony by the new head of the Federal Reserve.
A modest improvement in risk appetite saw the safe-haven yen lost ground, while MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.3 percent.
Japan’s Nikkei climbed 1.4 percent and E-Mini futures for the S&P 500 rose 0.1 percent.
The gains followed Wall Street, where the Dow ended Friday up by 1.39 percent, while the S&P 500 gained 1.60 percent and the Nasdaq 1.77 percent.
For the week, the Dow rose 0.37 percent, the S&P 0.56 percent and the Nasdaq 1.35 percent.
The VIX volatility index fell just over 2 points on Friday to end at 16.49 percent, far below the 50 percent peak touched at the height of market turmoil in early February.
The mood has calmed partly thanks to expectations the Federal Reserve will stay gradual in its tightening, a measured outlook underlined by the central bank in a governors’ report released on Friday.
Investors also seem to be wagering that Fed Chairman Jerome Powell will stick to that script at his first appearance before the House on Tuesday, followed by testimony to the Senate on Thursday.
“Powell will be highly cognisant of the spike in risk aversion in late January and will be keen not to rock the boat too greatly,” argued Chris Weston, chief market strategist at broker IG.
“Futures markets on Friday were pricing in less implied policy tightening from the Fed in the years ahead, suggesting traders are not expecting Powell to signal a more aggressive response.”
Yields on U.S. 10-year Treasuries had also backed off to 2.86 percent and away from a four-year top of 2.957 percent.
An added wrinkle is that the Fed’s favoured measure of inflation, the core personal consumption expenditure (PCE) index, is out early on Thursday.
Markets will be hyper-sensitive to any hint of a pick-up in core inflation given the surprising strength of wages in January and Powell is certain to be questioned on the risks by Senators.
In currency markets, the U.S. dollar inched up 0.1 percent against a basket of currencies to 89.982, adding to a 0.8 percent bounce last week.
It was firmer on a broadly softer yen to reach 107.05 , further away from the recent low at 105.545.
The euro was hovering at $1.2287 and just above last week’s trough at $1.2258, with bulls turning cautious ahead of the outcome of the Italian general election on March 4.
A German Social Democrats’ poll of its members on joining another coalition government with Chancellor Angela Merkel’s conservatives is also due that day, two big political risk events for markets.
In commodities, spot gold was a fraction softer at $1,327.60 per ounce.
Oil prices were underpinned by the shutdown of the El Feel oilfield in Libya and upbeat comments from Saudi Arabia that an OPEC-led effort to cut stockpiles is working.
U.S. crude futures added 2 cents to $63.57 a barrel, while Brent futures eased 2 cents to $67.29.
Editing by Kim Coghill