* Nikkei average dips after nine-day rally
* MSCI Asia ex-Japan stocks index hits 10-mth high
* Eyes on world's biggest IPO this year out of China
* China to begin tightening policy in spring 2010-Merrill
By Kevin Plumberg
HONG KONG, July 28 (Reuters) - Asian stocks hit a 10-month high for a seventh day on Tuesday as investors were lifted by improving corporate earnings, though the non-stop pace of the rally caused some to wonder if it was overdone.
The Australian dollar shot to its highest level since last September after the governor of the Reserve Bank of Australia said the central bank does not have to wait for unemployment to peak before raising rates, adding to speculation the next move will be up.
Major European stock markets opened firmer as investors rode the wave of positive sentiment. U.S. stock futures were down 0.2 percent after the S&P 500 closed on Monday at its highest level since November 4.
An abundance of easy money and low bank deposit rates in Asia have been pushing retail investors to shift money from bank accounts to equities, scrambling for higher returns despite increasingly expensive price tags.
"These strong liquidity conditions are pushing Asian equities to stretched valuation levels, in our view. We think a strong recovery in global final demand is now priced in," Henry Hon and Daniel McCormack, strategists with Macquarie in Hong Kong, said in a research note.
They recommended slowly cutting exposure to riskier stocks as prices rise further.
Japan's Nikkei share average edged down just 1.4 points to 10,087.26 after posting a nine-day rising streak, the longest winning run since 1988.
"High-tech shares that had already rallied are pausing for now, and clues to further gains in the overall market will depend on the degree to which investors snap up laggard banking shares," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.
Valuations have been recovering from depressed levels in Japan. However, on a price-to-book basis, the Nikkei is trading at around 1.3 times compared with the five-year average of 1.8 times, suggesting there may still be pockets of value.
The MSCI index of Asia Pacific stocks outside Japan rose 1.3 percent, racking up a 10-month high.
Gains have sharply outpaced global equity markets, with the regional index up 71 percent since March 9, when share markets began a bullish recovery, compared with a 45 percent gain in the MSCI all-country world index.
Hong Kong's Hang Seng index was trading 1 percent higher in a choppy session, with index heavyweight China Mobile up 3.6 percent.
Investors in mainland China awaited the trading debut on Wednesday of China State Construction Engineering Corp, which with proceeds of $7.3 billion, will be the biggest IPO this year.
The IPO market in China has heated up to the point of increasing fears of a stock market bubble -- only months after the worst of the financial crisis has passed.
Sichuan Expressway tripled in price on its first day of trade on Monday, though it was down 10 percent on Tuesday.
Merrill Lynch economists raised their 2009 Chinese gross domestic product growth forecast to 8.7 percent from 8 percent, and said winding down measures to boost the economy will happen beginning in the spring of 2010.
"Though sustainability of China's recovery remains a concern for some investors, a new concern is when Beijing will tighten policies. The so-called strategy has become a new focus for investors," economists Ting Lu and TJ Bond wrote in a note.
The Australian dollar swiftly turned positive on the day, trading up 0.9 percent to $0.8300 after Australia's top central banker gave an upbeat assessment of the economy.
However, he also warned that low rates should lead to home building and not just higher prices. [ID:nSYA006069]
The euro climbed against the U.S. dollar compared with late Monday in New York, trading at $1.4228, ahead of U.S. home price data and a consumer confidence report. The euro rose to an eight-week high overnight after a report showed U.S. new home sales rose 11 percent in June, the biggest monthly rise since 2000.
Oil prices edged up, cutting early losses as share markets turned higher. U.S. light crude for September delivery was up 0.5 percent to $68.70 a barrel, while Brent climbed 0.5 percent to $71.18. (Additional reporting by Aiko Hayashi in TOKYO; Editing by Neil Fullick)