* MSCI Asia-Pacific index up 0.4 percent
* China markets fall despite hints of policy support
* Catch-up rally, weak AUD help Aussie shares
* Bitcoin slumps after S. Korea exchange hacked
By Andrew Galbraith
SHANGHAI, June 20 (Reuters) - China's stock markets slumped on Wednesday, extending a rout from the previous day as the prospect of a full-blown Sino-U.S. trade war put a dampener on the rest of Asian equities, even as they managed a modest bounce.
MSCI's broadest index of Asia-Pacific shares outside Japan , rose 0.4 percent, though that came after a 2.1 percent fall on Tuesday. Japan's Nikkei was up 0.1 percent after earlier falling into negative territory. South Korea's KOSPI rose 1 percent.
In China, the Shanghai Composite Index dropped 0.6 percent in choppy trade, a day after falling 3.8 percent to a two-year low. Wednesday's fall came despite 30 listed firms announcing share purchase plans by major shareholders, and state media expressing confidence in the country's stock markets.
China's blue-chip CSI300 index was 0.5 percent lower after briefly flirting with gains, and the Shenzhen Composite Index was flat at midday.
The extended sell-off in China comes despite indications that the country's central bank could move to cut banks' reserve requirement ratios (RRR) to boost market liquidity, highlighting concerns over trade. The People's Bank of China (PBOC) recommended the move in working paper on Tuesday.
"It is fair to say an RRR (cut) seems imminent ... the only question is the magnitude," Sue Trinh, head of Asia FX Strategy at RBC Capital Markets in Hong Kong said in a note.
An apparent bias toward looser policy "runs counter to the regional bias toward higher rates to protect currency downside," she said, adding that growing policy divergence indicates room for the onshore and offshore yuan to depreciate.
Trade tensions between the United States and China showed few signs of easing after a White House trade adviser said on Tuesday that Beijing has underestimated the U.S. president's resolve to impose more tariffs.
Washington threatened on Monday to impose a 10 percent tariff on $200 billion of Chinese goods after Beijing decided to raise tariffs on $50 billion in U.S. goods, in response to similar tariffs on Chinese goods announced Friday.
Weakening appetite for risk pushed the yield on benchmark 10-year Treasury notes lower to 2.8894 percent, after earlier rising to 2.9 percent.
The two-year yield, which rises with traders' expectations of higher Fed fund rates, was at 2.5451 percent after earlier touching 2.5530 percent.
S&P 500 futures were flat, suggesting a limited upside for Wall Street after major U.S. indexes closed lower Tuesday.
AUSTRALIA CATCH-UP RALLY
In contrast, Australian stocks gained 0.8 percent, supported by a weak local dollar, which rose 0.2 percent after hitting a one-year low on Tuesday.
A more attractive dividend proposition and a weaker Australian dollar have made the market more alluring to overseas investors, said Ryan Felsman, a senior economist at CommSec.
"Last year the Aussie market was only up 7 percent relative to the US at 25 percent. We didn't get the sugar hit from the corporate tax plan, so there's a bit of catch-up in play as well," he said.
The US dollar was mostly flat against the yen, rising 0.05 percent against to 110.10, still some distance from its high this year of 113.38 on January 8.
The euro was down a hair at $1.1581, while the dollar index, which tracks the greenback against a basket of six major rivals, was barely lower at 95.040.
U.S. crude rose 0.4 percent to $65.31 a barrel. But ANZ analysts said in a note that rising trade tensions and disagreement within the Organization of the Petroleum Exporting Countries, which meets on Friday, are likely to weigh on oil prices.
Iran said on Tuesday that OPEC was unlikely to reach a deal on oil output this week.
Gold was mostly flat after falling near six-month lows Tuesday on a strong dollar. Spot gold was traded at $1274.50 per ounce.
Investors in cryptocurrencies were also hit by losses after South Korean virtual currency exchange Bithumb said it had been hacked and 35 billion won worth of virtual currency held at the exchange was stolen.
Bitcoin was 1.8 percent lower at $6,615.46.
Reporting by Andrew Galbraith Editing by Sam Holmes & Shri Navaratnam