[TOKYO] Asian stock markets wavered on Wednesday after downbeat US manufacturing data raised questions about how aggressive the Federal Reserve would be when hiking interest rates, while the dollar retreated from 8-1/2-month highs.
Data on Tuesday showed the US manufacturing sector contracted last month to its weakest level since June 2009, though construction spending rose in October to the highest level since December 2007.
While the manufacturing data in itself did not seem to shake expectations that the Fed likely will start raising rates in mid-December, it renewed debate about the pace of further rate increases and the potential impact on global capital flows.
A slower tightening cycle would mean that the flood of liquidity the Fed has been providing to global risk asset markets would not subside as quickly. But it could also lead to concerns among Asian exporters about the strength and sustainability of demand in one of their key markets.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 per cent.
Shanghai shares gained 0.8 per cent and Hong Kong's Hang Seng rose 0.5 per cent. Indonesian and Singaporean shares also advanced.
The decliners included Japan's Nikkei, which lost 0.2 per cent on a stronger yen. Australian stocks were down 0.1 per cent but had cut most of its earlier losses following a robust domestic GDP data release.
Australia's economy grew a brisk 0.9 per cent in the third quarter, marking a 24th year free from recession.
The Australian dollar, already on a bullish footing after the Reserve Bank of Australia (RBA) skipped a chance on Tuesday to cut interest rates or talk down the currency afresh, touched a 7-week high of US$0.7345.
Still, the RBA was seen sticking to an easing bias and eventually cutting rates. "Overall the Reserve Bank is likely to be encouraged by the latest result although there is still a long way to go to see annual growth back at trend levels," said Savanth Sebastian, an economist at CommSec. The risks still lie with a further rate cut in early 2016 if activity levels don't lift further from here."
The dollar index, a gauge of the greenback's strength against a basket of key currencies, pulled back from the 8-1/2-month peak of 100.310 scaled on Monday, and last stood at 99.896 in the wake of the disappointing manufacturing figures.
The dollar was also pressured by comments from Chicago Fed President Charles Evans, who emphasised the need for the US central bank to spell out a gradual pace of rate hikes.
"Manufacturing sector weakness is tied directly to the strong dollar but the sharp slide in US rates signals that investors are either questioning the Federal Reserve's resolve or looking past next week's rate hike," wrote Kathy Lien, managing director of FX strategy for BKX Asset Management.
The benchmark US 10-year Treasury note yield declined to a 1-month low of 2.145 per cent overnight as safe-haven government debt attracted bids. "Either way, we'll only be long dollars right up to the FOMC rate decision and not beyond it," Ms Lien added.
The dollar's retreat provided some respite to the euro, which has been battered recently by prospects of the European Central Bank rolling out more stimulus at its policy meeting on Thursday. The common currency traded above US$.10600, pulling back from a 7-1/2-month low of US$1.0557.
The greenback stepped back to 123.04 yen from Monday's high of 123.34.
In commodities, crude oil prices sagged on expectations that Opec will not cut output to stem a supply glut when they meet later this week.
US crude was down 0.5 per cent at US$41.64 a barrel and Brent lost 0.3 per cent to US$44.31 a barrel.