GLOBAL MARKETS-Asian shares erase losses as Mideast tensions ease, oil ticks up

* Safety rush turns to relief rally as Mideast tension ebbs

* Oil drops, stocks rise

* Gold and yen give back gains

* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Tom Westbrook

SINGAPORE, Jan 9 (Reuters) - Asian stocks rebounded on

Thursday and oil edged up as the United States and Iran backed

away from the brink of further conflict in the Middle East and

investors unwound safety plays.

U.S. President Donald Trump responded overnight to an

Iranian attack on U.S. forces with sanctions, not violence. Iran

offered no immediate signal it would retaliate further over a

Jan. 3 U.S. strike that killed one of its senior military

commanders.

MSCI's broadest index of Asia-Pacific shares outside Japan

.MIAPJ0000PUS rose 1%, as did Hong Kong's Hang Seng .HSI and

Shanghai blue chips .CSI300 , reversing Wednesday's losses.

Japan's Nikkei .N225 rose 1.8%, lifting stocks to their

highest for the year so far, while Australian stocks .AXJO

climbed 1% to just below December's record high.

"I think today is a bit of a relief rally," said Shane

Oliver, Chief Economist at AMP Capital in Sydney.

"Yesterday, investors were fearing the worst, that this was

the escalation now underway. The news overnight has been more

along the lines that Iran pulled its punches and Trump is toning

things down," he said, "which is seen by investors as

substantially reducing the risk of a war."

Investors quit the safe-haven Japanese yen JPY= , sending

it sliding from a three-month high to a two-week low of 109.25

yen per dollar. FRX/

Oil now sits just about where it was before the killing of

the Iranian commander, Qassem Soleimani, in Baghdad, a strike

that raised fears of an escalating regional conflict. O/R

Brent futures LCOc1 prices crept up from month lows hit

overnight to $65.84 per barrel, about where they began the year.

Gold XAU= gave back sharp gains made on Wednesday but

remains dearer than before Soleimani's death, in an indication

that investors' fears have not completely evaporated. GOL/

It drifted higher to $1,560.00 per ounce.

SANCTIONS NOT STRIKES

Iran fired missiles at military bases housing U.S. troops in

Iraq on Wednesday in response Soleimani's killing. But Trump

said no Americans were hurt and made no direct threats of a

military response in an address to the nation on Wednesday.

"Iran appears to be standing down, which is a good thing for

all parties concerned and a very good thing for the world," he

said. He announced economic sanctions on Iran without giving

details.

Iranian Foreign Minister Mohammad Javad Zarif had earlier

said the strikes "concluded" Tehran's response to the killing of

Soleimani.

On Wall Street stocks rose, led by the Nasdaq .IXIC which

added 0.67%, while the Dow Jones Industrial Average .DJI and

the S&P 500 .SPX each rose roughly half a percentage point.

U.S. Treasuries, which had soared in the flight to safety a

day ago also settled back, with yields on the benchmark 10-year

U.S. Treasury note US10YT=RR at 1.8598%, after dropping as low

as 1.705%.

Risk appetite was also evident in currency markets, with

China's trade-exposed yuan CNY= standing at a five-month high

of 6.9283 per dollar and the Aussie AUD= creeping higher.

"All is well - so says Trump! That is the mood today," said

Bank of Singapore Currency Strategist Moh Siong Sim, a reference

to Wednesday's upbeat tweet from the president.

"I think that neither side wants to have a further

escalation in tension, and both parties seem to be standing

down."