Asian stocks steadied near one-month highs on Tuesday as market players took a breather after five consecutive days of gains while the Australian dollar dipped ahead of a policy meeting of the country's central bank where it may signal a dovish stance.

Expectations for a moderate slowdown in Asia, rather than a hard landing, that will bring inflation rates down has been attracting capital inflows and increasing bets on a second-half recovery in stocks. Some markets though, particularly Japan, may be ripe for some profit-taking after jumping 4 percent in five sessions.

Risky assets have been slapped around in the first half of the year by concerns ranging from worries about escalating inflation in Asia, Japan's nuclear scare to surging commodity prices and the impact of the end of U.S. quantitative easing.

On Tuesday though, stock markets in Australia <.AXJO> and Japan <.N225> were largely flat with investors awaiting an Australian central bank rate decision where it is almost certain to hold rates at 4.75 percent, but an accompanying statement might offer hints that it may be backing away from a tightening bias.

China's shares <.SSEC>, which have been at the vanguard of the latest rally in regional equities, dipped after rating agency Moody's said its local government debt burden may be 3.5 trillion yuan ($540 billion) larger than auditors estimated, putting banks on the hook for deeper losses.

The MSCI index of Asia-Pacific shares outside Japan was broadly flat, holding near the highest since June 2. The index has been in a rising trend for the past two weeks.

EURO BUYERS EYED

In currency markets, the Australian dollar was also pressured lower after local Chinese media reports speculated that Beijing is planning to raise interest rates.

It was down 0.3 percent to $1.07, after rising by nearly 3 percent since last Monday.

The euro too came under some profit taking, though it still held within striking distance of a one-month high against the U.S. dollar before a much expected interest rate increase on Thursday where a hawkish European Central Bank might attract more buyers to the beleaguered currency.

It was trading at $1.4490 and has managed to retain almost all of last week's 2.5 percent gain -- its best weekly performance since January.

With Greek default fears being relegated to the back burner for now, BNP Paribas strategists expect more real money investors and leveraged accounts to start buying euros if it becomes clear that any dips won't stay much below the $1.45 line.

In a sign that the euro's near term outlook has stabilized, it held around that key support line, despite a warning from ratings agency Standard & Poor's on Monday that it would treat plans for a rollover of privately-held Greek debt being discussed as a selective default.

Asian currencies rose after the People's Bank of China fixed the yuan's mid-point at a record high for the second consecutive day on Tuesday at 6.4650 against the dollar.

Government bond markets were fairly quiet with yields on ten-year U.S. Treasury notes holding around 3.17 percent, a rise of nearly 30 basis points since last Monday.

In credit markets, the Asia ex-Japan iTraxx investment grade index tightened 1 bps to a mid-point of 107.5 bps after closing at 108.75 bps in the previous session.

U.S. crude futures stayed above the $95 per barrel line ahead of U.S. factory orders data later in the day.

Spot gold held steady near the $1,500 per ounce line while three-month copper contracts on the London Metal Exchange hugged the $9,460 a tonne line.

(Additional reporting by Umesh Desai and Ian Chua in SYDNEY; Editing by Ramya Venugopal)

China Japan BNP Paribas Quantitative easing