* MSCI Asia-Pacific index up 1.1 percent, Nikkei gains 1.1 pct
* China markets reverse losses on indications of policy support
* Drop in U.S. inventories lifts crude prices
* Bitcoin down 1.9 pct after S. Korea exchange hacked
By Andrew Galbraith
SHANGHAI, June 20 (Reuters) - Asian stock markets picked up steam in afternoon trade on Wednesday after a wobbly morning session, highlighting the lingering anxiety and uncertainty surrounding a heated trade dispute between China and the United States.
S&P 500 futures turned higher, rising 0.3 percent and pointing to possible gains on Wall Street after major U.S. indexes closed lower Tuesday.
In Asia, bargain hunters turned out to pick up shares on the cheap after the previous day's rout. The MSCI's broadest index of Asia-Pacific shares outside Japan bounced 1.1 percent after a 2.1 percent slide on Tuesday. Japan's Nikkei was up 1.3 percent after falling into negative territory earlier in the day. South Korea's KOSPI rose 1.4 percent.
In China, markets turned losses into gains as investors appeared to take heart from indications of government support.
The Shanghai Composite Index was 0.5 percent higher in early afternoon trade a day after falling 3.8 percent to a two-year low.
China's blue-chip CSI300 index gained 0.6 percent, and the Shenzhen Composite Index rose 1.4 percent.
Hong Kong's Hang Seng index was 1.4 percent higher in early afternoon trade after closing down 2.8 percent on Tuesday. The China Enterprises Index reversed losses from the morning session, rising 0.9 percent.
In a working paper on Tuesday, China's central bank said the country should cut banks' reserve requirement ratios (RRR) to boost market liquidity, highlighting concerns over trade, a day after the central bank governor urged investors to remain calm.
"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.
The bounce in share markets comes despite trade tensions between the United States and China showing few signs of easing. On Tuesday, a White House trade adviser said 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.
Nevertheless, the yield on benchmark 10-year Treasury notes rose to 2.9022 percent on Wednesday afternoon after earlier falling to 2.8820.
The two-year yield, which rises with traders' expectations of higher Fed fund rates, was at 2.5535 percent.
AUSTRALIA CATCH-UP RALLY
Australian stocks, which saw strong buying throughout the day, were 1.1 percent higher, supported by a weak local dollar. The Aussie dollar rose 0.3 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 stronger against the yen, rising 0.2 percent to 110.20.
The euro was 0.1 percent lower at $1.1574, while the dollar index, which tracks the greenback against a basket of six major rivals, was flat at 95.094.
U.S. crude rose 0.7 percent to $65.55 a barrel, supported by a drop in U.S. commercial crude inventories. But analysts said trade concerns and disagreements within the Organization of the Petroleum Exporting Countries over boosting supply continue to loom over the market.
Iran said on Tuesday that OPEC was unlikely to reach a deal on oil output this week.
Gold was flat after falling near six-month lows Tuesday on a strong dollar. Spot gold was traded at $1274.54 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 1.9 percent lower at $6,607.45.
Reporting by Andrew Galbraith Editing by Sam Holmes & Shri Navaratnam