* Shares gain as Republicans seen faring better than expected
* Dollar erase losses, U.S. bond yields near 7-year peak
* Trade worries likely to remain regardless of election outcome
By Hideyuki Sano
TOKYO, Nov 7 (Reuters) - Wall Street stock futures and Asian shares erased losses to eke out small gains on Wednesday as early results of U.S. mid-term elections appeared to show Republicans improving their chances of retaining their grip on Congress.
U.S. S&P500 futures were up 0.4 percent, clawing back earlier losses of 0.4 percent, and the dollar pared its decline, as Republicans were on track to pick up a few closely-contested seats on the East Coast.
The congressional elections is billed as a referendum on President Donald Trump's polarising style and "America First" policies.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 percent while Japan's Nikkei rose 0.6 percent.
"It seems like the Republicans have the real chance of taking not only the Senate but also the House. That appears to be boosting stocks," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
Investors had expected the opposition Democrats to pick up at least 23 seats they need to gain a majority in the House and, as a result, remained sceptical about Trump's proposal late last month on tax cuts for middle-income households.
While the final results are still hours away, markets have reacted as a surprise victory by the Republicans could boost the chances of further tax cuts and pro-business policies.
On the other hand, many investors also expect Trump to continue to take a hard line on tariffs, which he can impose without Congressional approval. That keeps alive worries about a trade war between China and the United States.
Trump's massive tax cut, enacted in December, and a spending agreement reached in February have helped lift the U.S. economy, but they have also widened U.S. federal budget deficit.
As a result, Treasury supply has been growing, pushing U.S. bond yields higher.
The 10-year U.S. Treasuries yield rose to at 3.224 percent , near its seven-year high of 3.261 percent touched a month ago, as investors sold ahead of this week's record amounts of longer-dated government debt supply.
Oil prices were soft after a 2 percent fall the previous day, with U.S. crude futures hitting an eight-month low as Washington granted sanction waivers to top buyers of Iranian oil and as Iran said it has so far been able to sell as much oil as it needs to.
U.S. West Texas Intermediate (WTI) crude futures traded down 0.7 percent at $61.78 a barrel having hit a low of $61.31 on Tuesday, the weakest price since March 16.
The dollar index recovered from early losses to trade almost flat.
The euro stood flat at $1.1427, retreating from a rise to two-week high of $1.1473.
The yen stood steady at 113.45 per dollar while the British pound changed hands at $1.3100, flat on the day.
Earlier the sterling hit a three-week high, extending gains on hopes of a Brexit deal breakthrough after Brexit Secretary Dominic Raab said "Thumbs Up" on his way out of a cabinet meeting.
That helped sterling recover losses following remarks from a senior member of the Northern Irish Democratic Unionist Party earlier that it looked like Britain would exit the EU without a deal. (Reporting by Hideyuki Sano in Tokyo; Editing by Sam Holmes)