Asian stock markets took a breather on Monday with Tokyo's Nikkei slipping on fresh concerns about the economy, and the yen traded in a small range in a session likely to be dulled by the U.S. Labor Day holiday.

Merger news was expected to help European stocks extend recent gains, with indexes in Britain, Germany and France seen opening firmer. Gaz de France and Suez have unveiled revised terms of an 18-month-old merger plan.

The underlying tone in Asian markets was generally positive after President George W. Bush and Federal Reserve Chairman Ben Bernanke both talked about tackling a credit problem that had gripped financial markets.

Bush announced on Friday proposals intended to prevent homeowners from defaulting on risky mortgages, while Bernanke said the Fed would take necessary steps to shelter the economy from turmoil in financial markets.

Bernanke's and Bush's comments were quite positive, but we still need to look at U.S. economic indicators and determine how much the economy is slowing down, said Kim Heong-hwan, a strategist at Woori Investment and Securities. Until we can have more confidence, the markets will trade in a boxed range.

By 2:30 a.m. EDT, MSCI's measure of Asia Pacific stocks excluding Japan was up 0.5 percent at a three-week high.

The index had rallied 3.8 percent last week and was now about 18 percent above a five-month trough plumbed on August 17, but still 6 percent below its July 24 record high.

Tokyo's Nikkei eased 0.3 percent, weighed by data showing Japanese firms unexpectedly cut capital spending by 4.9 percent in April-June from the same 2006 quarter.

The data was disappointing, said Yasuo Yabe, director of sales at Meiwa Securities. We'd have liked to get a confirmation that the Japanese economy is okay.

Also under pressure, Hong Kong's Hang Seng Index, fell 0.9 percent, recoiling from a record high hit in the previous session. Other major markets in the region were flat to modestly firmer.

Investors are puzzled about the direction of the market, but financial markets have been rebounding so fast no one wants to miss out on the action, so stocks with news like China Eastern are doing well, said Steve Cheng, associate director at Shenyin Wanguo.

China Eastern Airlines nearly doubled in value to a record after Singapore Airlines and its parent Temasek agreed to buy a combined 24 percent stake in the Chinese airline for US$918 million. and Singapore Airlines shares climbed 1.6 percent.

Investors also snapped up Australia's Leighton Holdings, driving the share up 6.5 percent, after the construction firm said it would buy a stake in Dubai-based Al Habtoor Engineering to expand in the lucrative Gulf market.

YEN SUBDUED

But caution ahead of key U.S. data due this week as well as a Thursday policy-setting meeting at the European Central Bank kept the yen in a tight range.

The dollar bought about 116 yen up slightly from late U.S. levels, while the euro fetched 158.35 yen The single currency was little changed at $1.3645

The high-yielding Australian dollar climbed above 82.20 U.S. cents after a batch of economic data reinforced expectations the country's central bank would keep a bias towards raising interest rates.

Safe-haven Japanese government bonds (JGBs) stayed under pressure after Friday's fall and ahead of a 10-year note auction this week.

The yield on the 10-year JGB climbed three basis points to a two-week high of 1.635 percent.

London Brent crude put on 21 cents to $72.90 on worries a potentially catastrophic Category 5 storm in the Atlantic Ocean may disrupt supply, while spot gold held above $672 an ounce after Friday's rally.

I don't think the subprime problem has resolved and the market's concerns stay, but the U.S. president and the Fed clearly relieved the market, which helped lift gold, said Tatsuo Kageyama, analyst at Kanetsu Asset Management.

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