Asian stocks pared early gains on Monday, pausing after their recent rally, while the dollar held firm as strong U.S. retail sales data prompted investors to trim bets of further U.S. interest rate cut.

The upbeat U.S. report had underpinned base metals prices, while mounting tension between Turkey and northern Iraq helped keep U.S. crude within striking distance of a record high of $84.05 set on Friday.

Concern that rising energy prices will stoke inflation drove gold back towards its recent 28-year high of $753.60.

At 0224 GMT, MSCI's measure of Asia Pacific stocks excluding Japan had edged up 0.2 percent, while Tokyo's Nikkei average was up about 0.3 percent.

Last week, the MSCI index posted its eighth straight weekly gain and set four record-closing highs in the last five sessions.

Analysts warned that further substantial upside may be limited, given concerns that Asian stocks may have risen too much too fast over the last few weeks.

We're probably due for a correction at some point. The higher it gets, the more tempting it will get to take profits, said Eric Betts, equities strategist at Nomura Australia.

Still, the upbeat U.S. retail sales report has helped soothe worries about the health of the U.S. economy for now.

Data last Friday showed U.S. retail sales rose solidly in September, while inflation pressures were largely muted, easing fears that the world's largest economy and Asia's largest export market may be sliding into recession.

Most people had worried the U.S. economy would enter a recession, but the data on Friday showed the economy is not that bad, said Cho Seong-joon, an analyst at Meritz Securities.

On the back of the renewed confidence in the U.S. economy and stronger commodity prices, investors bought resource stocks including mining giant BHP Billiton and oil and gas producer Woodside Petroleum

Some exporters such as Sony Corp and chip-tester maker Advantest Corp, were further underpinned by a firm dollar, which tends to boost the value of overseas sales.

PetroChina rallied 7.7 percent after the world's second-largest oil producer said it pumped 4.3 percent more oil and gas in the first nine months of the year.

Among regional markets, Australia's S&P/ASX 200 index hit a record high before turning flat, while Hong Kong's Hang Seng Index added nearly 1 percent to a new life high. Financial markets in Malaysia and Indonesia were closed for a public holiday.

Stocks in mainland China also lost their grip on early gains, pushing the Shanghai Composite Index down 0.5 percent following Beijing's latest move to cool its booming economy.

On Saturday, China's central bank raised the proportion of deposits that banks must hold in reserve for the eighth time this year.

But market players expect the market to perform well this week as the 17th Communist Party Congress kicked off.

The government is ensuring a harmonious political atmosphere for the Party Congress, and this means a healthy stock market, said Liu Lifeng, fund manager at BOC International Holdings in Shanghai.

DOLLAR FIRM

In the forex market, the dollar held near a two-month high against the yen and also rose versus the euro after the upbeat retails sales report cast doubts about whether the Fed would cut interest rates again at its meeting at the end of October.

But caution ahead of a Group of Seven meeting due later this week was likely to keep the major currencies stuck in a range.

With the G7 just ahead, it's not a situation where traders want to react in a big way to macroeconomic data, said a trader for a major Japanese trading house.

The dollar traded at 117.57 yen near a two-month peak of 117.79 yen set last Thursday.

The euro eased to $1.4162 from around $1.4180 in late New York trade on Friday and was trading at 166.54 yen off a 2-½ month high near 167.70 yen set last Thursday.

Tracking falls in U.S. Treasury prices, Japanese government bonds (JGBs) lost ground in early trade, pushing yields higher. The yield for the benchmark 10-year JGB climbed 2 basis points to 1.72 percent.

U.S. light, sweet crude for November delivery fell 12 cents to $83.57 a barrel by 0213 GMT, hovering within sight of last week's record high of $84.05 a barrel as mounting tension between Turkey and Iraq added to a rally fuelled by winter supply worries and dollar weakness.

Japan Australia China Iraq