(Reuters) - Asian shares gave back earlier gains Thursday after data showed China's factory activity shrank for a fifth successive month, underscoring concerns about a growth slowdown in the world's second largest economy.

The MSCI Asia Pacific ex-Japan index <.MIAPJ0000PUS> was nearly flat, falling sharply from a 0.6 percent gain before the Chinese data. Still, the index has recovered about a third of the plunge from this year's peak hit on Feb. 29 to be up about 12 percent year to date.

Japan's Nikkei average <.N225> gained 0.4 percent after opening lower, as investors picked up companies that had lagged this year's rally. .T

The HSBC flash PMI, the earliest indicator of China's industrial activity, fell to 48.1 in March from February's four-month high of 49.6, with new orders sinking to a four-month low. It data raises the prospect the authorities could further ease monetary policy to help underpin growth, but lingering inflation risks put Beijing's policymakers in a dilemma.

The Australian dollar fell below $1.040 after the data, which heightened concerns of slowing commodities demand from Australia's single biggest export market.

Growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand. This calls for further easing steps from the Beijing authorities, HSBC chief China economist Qu Hongbin said in a statement.

Hong Kong shares <.HSI> slipped back and Shanghai stocks <.SSEC> fell into negative territory after the data.

Earlier, Japan had published slightly better data, which showed the country logged in a trade surplus of 32.9 billion yen ($393 million) in February -- the first surplus in five months -- against a forecast for a 120 billion yen deficit, lifting the yen against the dollar to an intraday low near 83.14 yen from 83.44 yen before the data was released.

During Asian hours, key market drivers are Japan's trade data and China's PMI, said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.

Otherwise, markets will likely continue to consolidate and are more likely to be affected by quarter-end supply and demand flows than headline news.

Safe-haven demand pushed down U.S. Treasury yields on Wednesday, and given the recent correlation between U.S. debt yields and the dollar the U.S. currency may be undermined if Treasury yields keep falling, Saito said.

EUROPE WORRY RESURFACES

While few expect the euro zone's debt crisis to be resolved anytime soon, given that crucial structural reforms require several years, investors were yet again reminded of the long road ahead.

Portugal's core public deficit nearly tripled in the first two months of 2012, as a deepening economic slump dented tax collection, stoking concerns the country may miss its budget targets and follow Greece in needing more funds.

Italian and Spanish debt prices took a beating on Wednesday on concerns about Spain's slow progress in boosting its finances, while Italy faces stiff opposition to its severe austerity steps, with the country's largest trade union calling a general strike over labor reforms.

The euro was steady at $1.3219, off a two-week high of $1.3286 reached on Wednesday.

On the positive side, Germany's RWI economic institute nearly doubled its 2012 forecast for growth in Europe's largest economy to 1.0 percent due to an improvement in the global outlook and stabilizing financial markets.

The worst of the euro zone crisis is over and the European Central Bank will act if inflation risks grow, ECB President Mario Draghi said in a German newspaper interview released on Thursday.

Investors will now look to manufacturing data in Europe to be released on Thursday, with flash PMI estimates from across the euro zone forecast to show an overall improvement versus February, according to a Reuters poll.

Wednesday's U.S. data was also promising. U.S. home sales fell in February, but upward revisions to the prior month's pace and the first yearly increase in prices in 15 months pointed to steady improvement in the housing market.

Brent oil fell 0.4 percent to $123.71 a barrel while U.S. crude futures eased 0.7 percent to $106.52 a barrel.

Japan HSBC Manufacturing Portugal