* MSCI Asia Ex-Japan down 0.2 pct
* China shares fall after GDP, then rally on regulator comments
* Japan's Nikkei off 1.1 pct
* Trade disputes, rising U.S. rates, Italy budget weigh
By Andrew Galbraith
SHANGHAI, Oct 19 (Reuters) - Asian stocks slipped further on Friday as China posted its weakest economic growth since the global financial crisis, adding to market concerns about trade disputes, rising U.S. interest rates and Italy's free-spending budget.
The MSCI's broadest index of Asia-Pacific shares outside Japan was 0.2 percent weaker following China's latest GDP reading. Australian shares fell 0.3 percent and Japan's Nikkei average was 1.1 percent lower.
A weak Wall Street on Thursday set the tone for Asian trade. The Dow Jones Industrial Average fell 1.27 percent, the S&P 500 lost 1.44 percent and the Nasdaq Composite dropped 2.06 percent.
"Markets continue to digest the combination of higher U.S. rates, ongoing trade tension and Chinese growth concerns," analysts at ANZ said in a note.
On Thursday, the flight to safe-haven assets partly dampened rising U.S. Treasury yields. Still, early in Asia on Friday, the 10-year yield rose to 3.1767 percent from the U.S. close on Thursday of 3.175 percent.
The two-year yield, sensitive to expectations of higher Fed fund rates, edged up to 2.8741 percent.
China's economic growth in the third quarter slowed to 6.5 percent, its weakest pace since 2009 and below expectations, as a campaign to tackle debt risks and the trade war with the United States weighed on the economy.
"Weakness is largely coming from the secondary industry- most notably manufacturing," said Betty Wang, senior China economist at ANZ. "We may review our Q4 forecasts. Property investment continues to hold up which may provide some support."
Shares in China, which initially extended losses after the figures were released, rallied as investors digested statements from senior regulators pledging support for private firms and companies facing liquidity problems.
The benchmark Shanghai Composite index was 0.5 percent higher at around 0300 GMT, after hitting near four-year lows on Thursday, in part hurt by widespread concern that plunging share prices could lead to a spike in margin calls.
Analysts cautioned that China's economy would continue to face difficulties.
"Looking ahead, economic outlook is not optimistic with exports facing further headwinds as U.S. tariffs kick in and demand from emerging countries ebbs," said Nie Wen, an analyst at Hwabao Trust in Shanghai.
China's premier said this week that the economy faces increased downward pressure, but that government will take measures to stabilise growth.
In the latest trade war volley, the U.S. is requesting that a World Trade Organization dispute resolution panel look into tariffs imposed by China, the European Union, Canada and Mexico in retaliation to U.S. tariffs on steel and aluminium.
Further fraying market nerves, the European Commission on Thursday said a draft 2019 budget from Italy was in "particularly serious non-compliance" with EU rules, setting the stage for a possible unprecedented rejection of the country's fiscal plan.
The euro was up 0.06 percent at $1.1459, having lost 1.3 percent in a month, while the dollar index, which tracks the greenback against a basket of six major rivals, was a touch higher at 95.943.
The dollar was up 0.18 percent against the yen at 112.38 .
Oil prices ticked higher after falling on Thursday. U.S. crude was up 0.3 percent at $68.88 a barrel and Brent crude was trading at $79.47 per barrel, 0.2 percent higher.
Gold also rose, with spot gold rising 0.2 percent to$1,227.94 per ounce. (Reporting by Andrew Galbraith, additional reporting by Daniel Leussink in TOKYO; editing by Richard Pullin and Neil Fullick)