* Dollar hits 5 1/2-month high vs yen
* Ex-Japan Asia MSCI near 4 1/2-month low, Nikkei up 0.5 pct
* U.S. 10-year yields near Nov 2015 peak
By Hideyuki Sano
TOKYO, Nov 21 (Reuters) - Asian shares were on the defensive on Monday, undermined by fears that the strength in the U.S. dollar and rising U.S. bond yields since Donald Trump's election to president could accelerate fund outflows from the region back to U.S. markets.
Asian markets were steady to slightly lower, with Hong Kong's Hang Seng flat, Australian shares down 0.2 percent and South Korea's Kospi falling 0.3 percent.
But Japan's yen-sensitive Nikkei bucked the trend, rising 0.8 percent to hit a 10 1/2-month high, thanks to the weaker yen. European shares were expected to gain, with spread-betters seeing a rise of 0.2 percent in Germany's DAX and Britain's FTSE.
Trump's unexpected election victory has led to a major repricing of assets, with investors rushing to buy U.S. stocks and the dollar, while dumping bonds and emerging market assets.
Trump's plan to expand fiscal spending, including more infrastructure spending, could be a game changer for markets that have long taken a policy mix of fiscal discipline and loose monetary policy for granted.
Under Trump's reflationary policies, the Federal Reserve might have to raise interest rates faster than expected to curtail inflation, making U.S.-dollar based assets more attractive at the expense of emerging nations.
"The markets driven by Trump may be just about to have run their course for now," said Toru Ohara, chief investment officer at Okasan Asset Management.
"A rise in interest rates is, generally speaking, not good thing for stocks, especially for emerging markets. But if you think that U.S. bond yields, which have been falling since 1982, may be bottoming out, that could mean the end of a low-growth/ low-inflation regime," he said.
Heightened uncertainty prompted investors to demand higher premiums for holding long-term U.S. debt, with the 10-year U.S. Treasuries yield accelerating to 2.364 percent by last week from around 1.86 percent before the elections.
It last stood at 2.340 percent, with a rise above its 2015 peak of 2.5 percent seen as having potential to spark a further sell-off as bond prices fall.
To be sure, investors have little idea of the extent that Trump could actually implement his proposals, which include putting tariffs on goods from major trading partners such as China and Mexico, and going ahead with heavy tax cuts that would widen the U.S. fiscal deficit.
Some investors suspect markets will soon have a reality check as differences between the new administration and Congress over some of Trump's policies begin to emerge.
"Next week, we have events that would make investors more sober, such as the OPEC meeting and Italian referendum. By then this Trump-inspired market may have come to an end for now," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Higher U.S. yields are helping the dollar continue its bull run. The greenback rose to as high as 111.19, its highest level since early June. It last stood at 111.08.
It has risen almost 10 percent from its low of 101.19 hit on Nov 9, when Trump's victory was initially seen as stoking uncertainty and triggering a rush to safer assets such as the yen.
The euro traded $1.0604, having hit a near one-year low of $1.0569 on Friday.
The Australian dollar hit a 4-1/2-month low of $0.7311 while the Chinese yuan fell to an 8 1/2-year low of 6.8992 to the dollar.
The data from the U.S. financial watchdog showed on Friday that in the first week after the U.S. elections speculators barely increased their net long positions in the dollar.
"This suggests the leveraged fund community largely missed out on the dollar rally," analysts at ANZ Research wrote.
Many emerging market currencies remained under pressure on fears investors could bring their money back to the United States. The Malaysia ringgit hit 14-month low while the Philippine peso edged to near its 2008 low.
Oil prices rose in early Monday trade after five-percent gains last week, their first weekly gains in about a month, on growing expectations that OPEC will find a way to cap production.
The Organization of the Petroleum Exporting Countries is moving closer to finalising its first deal since 2008 to limit output, with most members prepared to offer Iran flexibility on production volumes, ministers and sources said.
Brent crude futures rose 1.3 percent to $47.47 per barrel. (Reporting by Hideyuki Sano; Editing by Eric Meijer & Shri Navaratnam)