* Nikkei recoups some losses after Wall St rallies
* Distressed selling might have peaked, but volatility a risk
* Bond yields jump again as safe havens lose their allure
* Yen retreats broadly, dollar keeps to tight ranges
By Wayne Cole
SYDNEY, Feb 7 (Reuters) - Asian share markets were trying to find their footing on Wednesday as a semblance of calm returned to Wall Street where major indices bounced into the black after days of deep losses.
Analysts said distressed selling by leveraged funds looked to have run its course for the moment, allowing volatility to abate a little, though the prospect of monetary tightening across the globe remained a challenge for the long term.
"The removal of stimulus in a measured way is a perfectly reasonable proposition, although it has yet again caught the unprepared by surprise," said analysts at AMP Capital.
"Given rates are going to rise in the Atlantic economies over the coming months, we may see further jitters."
In early trade, MSCI's broadest index of Asia-Pacific shares outside Japan had crept up 0.5 percent, recouping some of Tuesday's 3.5 percent fall. That had been its biggest daily drop since August 2015.
Australia's main index rallied 1.1 percent and Japan's Nikkei rose 2.9 percent. The latter slid 4.73 percent on Tuesday for its steepest fall in 15 months.
Markets took their cue from a late rebound on Wall Street, though investors were warily eyeing E-Mini futures for the S&P 500 which were off 0.2 percent in Asian trading.
The Dow had ended Tuesday up 2.33 percent, while the S&P 500 added 1.74 percent and the Nasdaq 2.13 percent. The Dow carved out a 1,100-point trading range in all, a painful return of volatility to a market that until recently was marked by an absence of major shifts.
It was also a wild ride for Treasuries, with U.S. 10-year yields diving as deep as 2.65 percent before a fresh sell-off dragged them back up to 2.80 percent - the sort of range seen very rarely.
While the pullback in bonds was a hint that risk appetite might be returning, it also had the potential to trigger another spasm of selling in stocks.
It was a steep spike in yields last Friday that sparked the initial rout on Wall Street, forcing sales by a host of highly leveraged funds which ramped up volatility and drove yet more selling.
Many of these were algorithmic funds crowded into similar trades - long stocks and short volatility. The selling then cascaded through their computer systems in a way almost beyond human intervention.
The pivotal gauge of S&P 500 volatility, the VIX, did come off almost 20 points overnight but was still relatively elevated at 29.98 percent.
"Short volatility funds were caught by the spike in the VIX and had to cover," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
"You're a genius until you're not and when it takes just a day or two to unwind your whole strategy then you were never a genius," he added. "But volatility does cluster, so there is no guarantee that markets are out of the woods yet."
With stocks calming, investors also unwound safe haven positions in currencies. That saw the Japanese yen retreat and a rally in riskier plays such as the Australian and New Zealand dollars.
The Aussie shot to 86.50 yen from a low of 84.95, while the U.S. dollar popped up to 109.50 yen from a trough of 108.46.
The euro was relatively stable at $1.2377, while the dollar edged up 0.13 percent against a basket of currencies to 89.672.
Gold, another supposed safe harbour, fell back to $1,325.90 an ounce after touching a three-week low at $1,319.96.
Oil prices looked to be steadying after a third straight session of losses, with U.S. crude for April adding 47 cents to $63.58. Brent crude futures had ended down 40 cents at $67.22 a barrel.
Reporting by Wayne Cole; Editing by Eric Meijer & Shri Navaratnam