* Asian shares down as markets wait for US payrolls
* Eurozone inflation, US data fail to boost dollar
* Indonesian stocks fall heavily, Argentine peso at record low
By Vidya Ranganathan
SINGAPORE, May 4 (Reuters) - Asian shares stepped back while the Japanese yen held onto overnight gains in early trading on Friday as financial markets turned their attention to the looming U.S. payrolls data for fresh catalysts.
Investors were cautious after a largely weak performance on Wall Street overnight as some disappointing earnings reports offset strong economic data, while bond yields slid after a surprising slowdown in euro zone inflation.
The U.S. dollar weakened during what was a choppy session a day after the Federal Reserve ended a policy meeting with no change in rates and a less hawkish statement than investors had anticipated. Disappointing U.S. company earnings, upbeat data on factory orders and the U.S. trade balance as well as the underwhelming eurozone inflation data made for a challenging trading environment.
"Macro data from the U.S. and Europe are struggling to meet lofty expectations," analysts at ANZ said in a note.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.26 percent, while the dollar dropped 0.2 percent against the yen to 108.98.
Indonesian stocks led the declines, falling as much as 1.5 percent in early trading before recouping some of those losses.
"The price action since the FOMC statement indicates a real division of opinion in markets over the US dollar outlook," said Sean Callow, a strategist at Westpac.
The Fed's reminder that its inflation target was symmetric was a clear negative for Treasury yields, and so the U.S. currency's recovery was encouraging for dollar bulls, Callow said. Yet the dollar had failed to breach key levels such as 110 versus the yen, $1.20 against the euro and $0.75 versus the Australian dollar, he said.
"A 13-month low in eurozone inflation should have been a big boost for the dollar index - it was not. The payrolls report may not resolve this market battle."
The U.S. dollar had erased all its 2018 losses in the past two weeks on expectations the Fed will continue to raise rates, even as other major central banks around the world, including the European Central Bank, take longer to reduce stimulus.
The focus for markets will be on the U.S. jobs data due later in the global day, with the April report likely to underscore labour market strength. Nonfarm payrolls probably increased by 192,000 jobs last month, according to a Reuters survey of economists, after rising only 103,000 in March.
Investors were also keeping a close watch on U.S.-China trade talks, though analysts said they had little confidence that the U.S. delegation in Beijing, led by Treasury Secretary Steven Mnuchin, will achieve any breakthrough on the tariff standoff between the world's two biggest economies.
The yield on benchmark 10-year Treasury notes rose to 2.9477 percent compared with its U.S. close of 2.946 percent on Thursday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 2.4802 percent compared with a U.S. close of 2.484 percent.
Australian shares fell after a Reserve Bank of Australia statement that signalled the central bank sees faster economic growth this year and next but doubts inflation will reach the mid-point of its target band until 2020.
Japan's Nikkei stock index slid 0.16 percent.
The euro was flat on the day at $1.1988 and has lost 0.74 percent in a month, while the dollar index, which tracks the greenback against a basket of six major rivals, was down at 92.382.
Overnight, Argentina's peso, which has been among the worst hit emerging market currencies during the past couple of months on rising U.S. yields, tumbled again to a record low. The currency has been hit by a lack of investor confidence in Latin America's No. 3 economy, which has been blighted by one of the world's highest inflation rates.
Argentina's central bank raised its benchmark interest rate by 300 basis points to 33.25 percent on Thursday, but the second steep rate increase in less than a week failed to stop the peso currency from plunging.
Elsewhere, U.S. crude dipped 0.03 percent at $68.41 a barrel, while Brent crude fell to $73.58 per barrel. Gold was slightly higher. Spot gold was traded at $1313.6 per ounce.
Editing by Shri Navaratnam