Asian stocks fell on Thursday as investors fretted over tighter monetary policy in China on the back of strong loan growth and quickening inflation, while the yen struggled amid signs that Japan's economy may need more support.

The MSCI index of Asian shares outside Japan <.MIAPJ0000PUS> shed 0.6 percent, retreating from a seven-week high touched before the Chinese data which showed the economy grew at a brisk pace, while inflation hit a 16-month high.

The losses were limited by the market view that Asia's economic recovery remains broadly on track.

Foreign buying of Asian stocks, particularly South Korea, Japan and India, continued unabated with data showing emerging market equity funds reported a third straight week of inflows.

Shanghai stocks <.SSEC> shed two-thirds of a percent as investors feared that strong loan expansion in February could prompt the authorities to soak up more cash from the financial system.

February new loans remained higher than the government intends it to be, so we expect another rise in bank reserve requirements to come very soon, almost certain in this month, said Zheng Weigang, head of investment at Shanghai Securities.

An interest rate hike will wait at least until the second quarter.

Fears that China could tightening its monetary policy has fueled risk aversion in recent weeks, alongside jitters over debt problems in some European countries.

Japan's Nikkei average rose 0.9 percent, with exporters such as Sony <6758.T> climbing on a weaker yen and after U.S. wholesale inventories unexpectedly fell in January.

Trading by foreign investors and funds backed by domestic individual investors is dominating the market now as Japanese institutional investors can't really move actively because this month is the end of the business year in Japan, said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.

The focus will be on important events in Japan, the United States and Europe all happening next week, namely the Federal Reserve and the Bank of Japan policy review as well as Greece's future plans.

EU finance ministers meet on March 16 to discuss Greece's financial problems, and their exit strategies from fiscal stimulus worth hundreds of billions of euros to battle the crisis.

The yen cut some of the losses suffered the previous day as investors took profits in other currencies, but it hovered near a two-week low against the dollar.

Data showed the economy grew less than expected in the fourth quarter and the deflator hit a record negative reading, adding to pressure on the Bank of Japan to ease policy next week.

Meanwhile, the Australian dollar dipped before data showed a smaller-than-expected rise in Australian employment, reducing the chances of a rate rise next month.

Gold regained some strength after falling to its weakest in nearly two weeks the previous day, while oil prices retreated from an eight-week high hit on Wednesday.

(Additional reporting by Lu Jianxin in SHANGHAI and Aiko Hayashi in TOKYO; Editing by Jan Dahinten)

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