By Selena Li

HONG KONG (Reuters) - Japanese shares led gains in Asian stocks on Tuesday as the Bank of Japan defended its ultra-easy stance, while oil slid on fears of lower demand from China as Shanghai applied a "zero-COVID" strategy by locking down despite a relatively modest caseload.

Japan's Nikkei gained 0.91% in early trade, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.64% .

The BOJ vowed to keep monetary policy ultra-loose, offering to buy unlimited government bonds for the first four days of this week, to prevent yields in Japan from rising as they are doing elsewhere following U.S. Federal Reserve's moves to hike interest rates in the face of mounting inflationary pressures.

Japan's 10-year government bond yields hovered near the 0.25% upper limit of the Bank of Japan's yield target even after the central bank made a rare move to step into the market for a second day.

Trading remained choppy however. Investors will favour markets that are lagging behind the Fed’s rate hike, trading on “a day to day trading mentality” and market noises and short term development , Chi Lo, senior market strategist APAC at BNP Paribas (OTC:BNPQY) Asset Management said .

“There is not really even medium term direction that the market is following,” he added.

The BOJ's action left the yen fighting for footing on Tuesday, following its worst session in 16 months.

The Japanese currency weakened by as much as 2.4% to 125.10 to the dollar overnight, its lowest since August 2015, before recovering to 124.24 in volatile morning trade in Tokyo.

Meanwhile, oil further weakened on Tuesday as market expects China to suffer from a slowed economy while it fights against renewed outbreak of coronavirus.

Oil U.S. crude fell 1.04% to $104.86 per barrel and Brent was at $111.09, down 1.24% on the day.Its financial hub of Shanghai reported a record 4,381 asymptomatic COVID-19 cases and 96 symptomatic cases for March 28 - a caseload that remains modest by global standards.

“Certainly commodity markets will not be comfortable in the short term with China shutting down,” Lo said, adding that many of the players estimate less than 5% growth this year for the economy, which he said is “too pessimistic” against the expectation of stronger stimulus.

The country’s stock benchmark CSI300 fell 0.52%, while in the offshore market, Hong Kong's Hang Seng index advanced 0.54%.

Australia S&P/ASX 200 slid 0.8% in early trading, despite stronger than expected retail sales data.

Yields on U.S. benchmark 10 year treasury notes were steady at 2.4696%, little changed on the day due to a pause in the sharp sell-off seen in recent days.

The U.S. Treasury yield curve, as measured by the gap between five and 30-year yields, inverted on Monday for the first time since early 2006.

“I think that is a macro economic signal that there is an economic recession risks down the road, which the Fed also acknowledges. But I think at this point, recession is not in everybody's mind. It is on the radar,” BNP’s Lo said.

Spot gold added 0.2% to $1,926.52 an ounce.