By Stella Qiu

SYDNEY, Sept 20 (Reuters) -Asian shares extended their rally on Friday, bathing in the afterglow of an outsized interest rate cut in the United States, while the yen was jittery ahead of a monetary policy decision in Japan as traders look for clues about future tightening.

In China, the central bank held its benchmark lending rates steady, dashing hopes for imminent policy support for its ailing economy. Chinese shares were an outlier, with the blue chips .CSI300 down 0.3% in early trade while the onshore yuan CNY=CFXS was guided higher by a strong official fixing.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5% to the highest in two months and was headed for a weekly gain of 2.4%.

The Nikkei .N225 jumped 1.9% in part helped by a weaker yen as bulls took some profit from the recent rally to 14-month highs. It is up 3.4% for the week.

The Bank of Japan (BOJ) is widely expected to keep its short-term rate steady at 0.25%, although focus will be on any hints from Governor Kazuo Ueda on the timing and pace of further hikes at the post-meeting press conference.

The yen is already nursing heavy losses, down 1% for the week at 142.28 per U.S. dollar JPY=EBS. Data from earlier in the day showed Japan's core inflation accelerated for a fourth consecutive month, reinforcing the case of further policy tightening.

"Today's meeting is not expected to alter the current monetary policy outlook, with the BOJ's next rate hike expected to be in December," said IG analyst Tony Sycamore.

"If Ueda were to put additional emphasis on the bank's positive outlook on prices and economic activity, it would likely be viewed as hawkish, potentially driving USD/JPY back towards 140.00."

Overnight, Wall Street finally had the time to digest the Federal Reserve's first rate cut. With more easing to come, investors are wagering on continued U.S. economic growth - a better-than-expected jobless claims data added to the view that the labour market remained healthy.

Markets imply a 40% chance the Fed will cut by another 50 basis points in November and have 73 basis points priced in by year-end. Rates are seen at 2.85% by the end of 2025, which is now thought to be the Fed's estimate of neutral. FEDWATCH

U.S. stock futures were slightly lower on Friday. The S&P 500 and Dow Jones Industrial Average surged to a record close overnight, while Nasdaq jumped 2.5%, spearheaded by tech shares. .N

In foreign exchange markets, the dollar was pinned near one-year lows against major currencies. The British pound GBP=EBS held at $1.3281, having rallied 0.7% overnight to the highest since March 2022, as the Bank of England held rates steady.

Short-dated U.S. Treasuries held close to two-year highs. Two-year Treasury yields US2YT=RR slipped 3 basis points on Friday but were, however, flat for the week.

Commodities also held onto their weekly gains. Gold XAU= hovered near a record high at $2,587.75 an ounce and oil prices are set for their second straight week of gain.

Brent futures LCOc1 slipped 0.3% to $74.69 a barrel, but are still up 4.2% this week. O/R

Reporting by Stella Qiu; Editing by Christopher Cushing

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