* China GDP data better than expected
* Asia shares on track for best monthly gains since 2012
* Cylical stocks in favor
* Dollar holds gains on recent data
By Saikat Chatterjee
HONG KONG, Oct 19 (Reuters) - Asian shares held two-month highs on Monday as a batch of Chinese data showed the economy slowing while still managing to reassure investors it was not in danger of a hard landing.
Adding to optimism wee growing bets that the U.S. Federal Reserve will delay its first rate hike since 2006 to next year, encouraging investors to hunt for bargains in beaten-down Asian equities.
The dollar slipped as investors took profits.
While China's September quarter growth data was its weakest since the global financial crisis, it was still better than market expectations - indicating that recent stimulus measures were having an impact.
MSCI's broadest index of Asia-Pacific shares outside Japan bounced around in a tiny range on Monday in the wake of the China data. It was last up 0.1 percent and on track for its best monthly performance since February 2012.
European stocks are expected to open broadly flat to higher lacking fresh data and taking cues from a sluggish Asian session.
Japanese shares edged 0.5 percent lower while Australia's rose 0.1 percent. Greater China shares were having a mixed day with mainland stocks rose 0.5 percent while Hong Kong shares slipped 0.3 percent.
"The GDP data is better than anticipated. It could mean that previously-announced stimulus, such as infrastructure investments, is beginning to work," said Yang Hai, strategist at Kaiyuan Securities. "The market is turning optimistic, against a backdrop of ample liquidity."
In a further encouraging sign for Asian equities, Bank of America Merrill Lynch flow data indicated that emerging market equity funds saw inflows from the first time in three months.
Within Asia, investors have piled into the more cyclical sectors such as industrials, consumer discretionary and information technology shares at the expense of staples and healthcare sectors in recent days, indicating renewed investor optimism.
The CBOE volatility index, often seen as a gauge of investors' fears in Wall Street shares, fell to a two-month low of 15.05 percent.
"Compared to some time ago, more people think things are starting to look up. Yet there remain concerns on the outlook for the global economy," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
In foreign exchange trade, the dollar held firm against a basket of six other major currencies, after U.S. industrial production data and as the euro and the yen were capped by speculation of more money printing.