Updates at 0325 GMT

By Rae Wee

SINGAPORE, Aug 16 (Reuters) -Asia shares were headed for a weekly gain on Friday and Japan's benchmark Nikkei was poised for its best week in over four years as upbeat risk sentiment spilled over from Wall Street, while the dollar and U.S. Treasury yields held broadly steady.

Last week's market turmoil was replaced by calmer conditions this week after a raft of U.S. economic data allayed recession fears in the world's largest economy and pushed back against expectations for aggressive U.S. rate cuts.

"Our assessment is that the market fallout from the weak early August U.S. data was disproportionate and in large part reflected the rapid unwind of crowded positions in some markets," said Jonas Goltermann, deputy chief markets economist at Capital Economics.

"While the risk of a recession in the U.S. has increased a little, there are few signs of a more substantial crisis brewing."

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 1.18% and was set to rise more than 2% for the week, while U.S. futures extended gains following a strong overnight cash session on Wall Street.

S&P 500 futures ESc1 rose 0.13%, while Nasdaq futures NQc1 added 0.22%. Similarly, EUROSTOXX 50 futures STXEc1 gained 0.25% and FTSE futures FFIc1 were little changed.

Strong U.S. retail sales data and low weekly jobless claims were the latest shot in the arm for the positive risk mood, following a benign inflation report earlier this week that reaffirmed bets for imminent Fed rate cuts, but likely at a measured pace.

Markets are now pricing in just a 25% chance of a 50-basis-point cut from the Federal Reserve next month, down from 55% a week ago, according to the CME FedWatch tool.

"The totality of data tells us disinflation is continuing and the Fed is almost certain to cut rates in September by 25bps," said David Chao, Invesco's global market strategist for Asia Pacific ex-Japan.

"But I do believe that the July inflation report diminishes the chances of a super-size cut, though this was never in the cards."

Japan's Nikkei .N225 was a notable outperformer in Asia, jumping nearly 3%.

Chinese blue-chips .CSI300 ticked marginally higher, while Hong Kong's Hang Seng Index .HSI rose 1.7%.

The Nikkei, which suffered heavy losses last week exacerbated by the unwinding of yen-funded carry trades, was poised for a weekly gain of about 8%, its best performance since April 2020.

Friday's gains were in part helped by a weaker yen which last stood at 148.88 per dollar JPY=EBS, languishing near a two-week low of 149.40 hit in the previous session and some distance away from last week's seven-month peak.

The Swiss franc CHF=EBS, which also surged last week on the back of a flight to safety, was little changed at 0.8713 per dollar and looked set to lose nearly 0.7% for the week.

In other currencies, the euro EUR=EBS struggled to break above the $1.10 level against a firmer dollar, which was buoyed by elevated U.S. Treasury yields.

The two-year yield US2YT=RR hovered near an over one-week high and last stood at 4.0700%, while the benchmark 10-year yield US10YT=RR steadied at 3.8997%. US/

In commodities, oil prices edged lower on Friday, though were set for a weekly gain as the upbeat U.S. economic data eased investor worries about a potential recession in the top oil consuming nation.

Brent crude futures LCOc1 dipped 0.22% to $80.86 per barrel, while U.S. West Texas Intermediate crude futures CLc1 eased 0.32% to $77.90 a barrel. Still, the two were eyeing a weekly gain of more than 1% each. O/R

Spot gold XAU= dipped 0.19% to $2,451.56 an ounce. GOL/

Editing by Shri Navaratnam

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