Most Asian markets sank on Thursday, fueling fears of fresh volatility after Federal Reserve minutes fanned expectations US interest rates would rise further.
The much-anticipated notes from the Fed's January policy meeting showed the board thought Donald Trump's sweeping tax cuts would fire up the already humming economy, pushing inflation higher.
Analysts speculate that the Fed will lift interest rates at its next meeting in March but there is debate about whether it will carry out three increases — as many have predicted — or four, in light of the recent spate of strong data.
“Our take is that the minutes reflect events prior to the jump in hourly earnings seen in the January jobs report and also prior to the extra spending bill passed by Congress early in February,” said Rodrigo Catril, senior forex strategist at National Australia Bank.
“This would suggest that there is a good chance that the current FOMC thinking has evolved towards a more hawkish tone since.”
Wednesday's news saw the key 10-year US Treasury yield hit a four-year high and boosted the dollar but sent US equities into reverse with all three main indexes ending in negative territory.
Investors have been on edge since the start of this month when global markets were sent spinning by a strong US jobs and wages report that fueled talk of tighter borrowing costs.
Equities around the world have surged to record and all-time highs thanks to a years-long rally built on cheap credit from crisis-era stimulus. But with economies globally improving, central banks are beginning to wind those policies in.
Tokyo ended 1.1 percent lower, Hong Kong fell one percent, and Singapore was off 0.5 percent. Seoul shed 0.6 percent, Taipei was off 0.5 percent and Manila dropped 1.4 percent. Jakarta and Bangkok both fell.
However, Shanghai jumped more than two percent as mainland traders returned from a week-long break for the Lunar New Year celebrations.
There were also gains in Sydney, Kuala Lumpur and Wellington.
“The market is pricing in the possibility of a tighter Fed over time,” Evan Brown, director at UBS Asset Management and former New York Fed employee, told Bloomberg TV.
“You're going to see volatility, you're going to see equities get a little skittish when yields are rising, but as you look over the long term, fundamentals on the economy are very strong.”
With rates expected to rise, the dollar rallied against its main peers on Wednesday and extended gains against the pound and euro in Asian business.
The greenback was also well up against most other high-yielding currencies, with the Australian dollar, Korean won and Indonesian rupiah sharply lower.
However, the yen rebounded and pushed higher as traders flocked to the Japanese unit, which is considered a safe-haven asset in times of volatility and uncertainty.
Key figures around 0710 GMT
Tokyo – Nikkei 225: DOWN 1.1 percent at 21,736.44 (close)
Hong Kong – Hang Seng: DOWN 1.0 percent at 31,114.92
Shanghai – Composite: UP 2.2 percent at 3,268.56 (close)
Euro/dollar: DOWN at $1.2267 from $1.2286 at 2140 GMT
Pound/dollar: DOWN at $1.3887 from $1.3919
Dollar/yen: UP at 107.48 yen from 107.74 yen
Oil – West Texas Intermediate: DOWN 53 cents at $61.15 per barrel
Oil – Brent North Sea: DOWN 39 cents at $65.03 per barrel
New York – DOW: DOWN: 0.7 percent at 24,797.78 (close)
London – FTSE 100: UP 0.5 percent at 7,281.57 (close)