Reuters - Asian markets inched cautiously higher on Monday encouraged by record highs for Wall Street, though anxiety over a credit squeeze in China has weighed on shares there while adding to pressure on emerging market currencies.

Volumes were very light with Tokyo on holiday on Monday and Christmas almost here. Australia's main index added 0.3 percent while S&P 500 futures gained 0.25 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan was a fraction firmer.

Sentiment should be underpinned by upbeat data on U.S. economic growth and the resilience of stocks to the Federal Reserve's decision to start scaling back its bond-buying stimulus.

On Wall Street, the Dow Jones ended Friday up 0.26 percent, while the S&P 500 Index added 0.48 percent. Europe's broad FTSEurofirst 300 index rose 0.45 percent.

The dollar was idling at 104.03 yen on Monday after scoring a fresh 5-year high at 104.64 last week. Dealers cited option barriers at 104.75 and 105.00 as the next target for bulls.

The euro was steady at $1.3674, but well short of last week's $1.3811 peak. The single currency was only briefly troubled on Friday when Standard & Poor's cut its supranational long-term rating on the European Union to AA-plus from AAA, citing rising tensions on budget negotiations.

Yields on benchmark 10-year Treasuries were holding at 2.89 percent having risen just 2 basis points last week even as the Fed announced its tapering.

In Asia, all eyes were on China after the country's central bank sought to allay fears of a cash crunch on Friday, saying it has added $50 billion in three days to the interbank market.

Rapid credit growth in the world's second-biggest economy has worried China's authorities, who fear rising debt levels are fuelling asset bubbles.

The People's Bank of China (PBOC) injected more than 300 billion yuan into the interbank market in response to rising rates, but hinted that banks have work to do if they want to avoid a cash crunch.

Worries about the banking system contributed to a 2 percent drop in Shanghai shares on Friday.

The combination of Fed tapering and tighter China interest rates could weigh on emerging market currencies and assets, as it did back in June.

Currencies from Indonesia to Malaysia and Thailand all came under pressure last week and even the Korean won lost a little of its strength.

Still, analysts at Deutsche argued that emerging markets (EM) Asia could weather any outflow of capital.