* U.S. ISM manufacturing index extends rebound
* Dollar index at 1-month high as Fed rate hike bets grow
* Nikkei up 4 pct, Hong Kong's Hang Seng by 2.8 pct
* High yield bonds also back in favour
By Saikat Chatterjee
HONG KONG, March 2 (Reuters) - Asian shares rallied to two-month highs on Wednesday as overnight gains in oil prices and a batch of positive economic data from Australia to the United States calmed fears of a global economic slowdown.
Fuelled by Asia, European stock markets are seen opening higher with spreadbetters expecting Britain's FTSE 100 to open 0.7-0.8 percent higher, Germany's DAX up by 1 percent, with France's CAC seen opening 0.8-1 percent up.
Stock markets across the region were in the black, led by Japan and Hong Kong, with announcements from China this week of a cut in bank reserve requirements and structural reforms helping underpin sentiment.
The Nikkei was up 4 percent and Hong Kong's Hang Seng Index by 2.9 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.5 percent to its highest levels since Jan. 7, and building on gains in the previous session.
"Following the selloff and the fears of recession that emerged early in the new year, people pulled back aggressively from their previous expectations about how a rate hike from the Fed might unfold," said Stefan Worrall, director of Japan equity sales at Credit Suisse.
"Suddenly some of this lost confidence has been restored as we've seen a lot of recent economic data from the U.S. beating expectations."
The Institute for Supply Management's (ISM) index of U.S. factory activity, a closely watched measure of the American manufacturing sector, rose more than expected last month. It also edged up for two months in a row, appearing to have snapped its almost continuous decline since late 2014.
U.S construction spending rose to the highest level since October 2007 while solid GDP data from Australia and Canada helped.
The well-received data helped lift the U.S. S&P 500 Index 2.39 percent to an eight-week high of 1,978.35. Stock futures pointed to further gains.
It also lifted expectations of a U.S. rate increase this year with interest rate futures effectively pricing in a full chance of a rate hike this year.
MSCI's broadest gauge of the world's stock markets also rose to highest level in almost two months.
In credit markets, where high yield debt has been dumped by investors on worries of growing bankruptcies, an index measuring its performance is up 7 percent since mid-February after falling by 12 percent between October to February.