Asian shares mostly fell on Thursday as Federal Reserve Chairman Ben Bernanke put the brakes on a recent rally by not signalling any further monetary easing to stimulate growth, while investors shifted their focus to manufacturing data due later in the day.
The European Central Bank's second liquidity injection operation came within market expectations, spurring the unwinding of positions built up ahead of the event on hopes that the money would further ease funding tensions in Europe and bolster risk appetite.
The MSCI Asia Pacific ex-Japan fell 0.3% after rising 1.4% to a seven-month high on Wednesday, taking its cues from US stocks which were weighed down by Bernanke's comments.
Japan's Nikkei opened up 0.5%t and extended its gains in early trade, but was still below a seven-month high hit on Wednesday.
The euro stood steady at USD 1.3328 after falling more than 1% on Wednesday to a nearly one-week low of USD 1.3315 as the ECB extended 530 billion euros in cheap, 3-year loans, with more than 800 banks applying for funding, up from 523 banks in its first auction in December.
The dollar held its ground after rising strongly on Wednesday when Bernanke, while offering a cautious view of the US economy, stopped short of signaling further Fed bond purchases, disappointing investors who were hoping for more stimulus.
"The US dollar pushes higher while equities retreat alongside metals as Bernanke gives a nod to inflation, departing from his last three speeches where he accentuated the extension of extremely low interest rates into 2014," said Ashraf Laidi, chief global strategist at City Index Group.
Bernanke described rising gasoline prices as "primarily reflecting higher global oil prices -- a development that is likely to push up inflation temporarily while reducing consumers' purchasing power," an acknowledgement of inflationary pressure, Laidi said.
Focus on recovery
As the ECB completed its much-awaited liquidity operation and Bernanke sounded a cautious note on extending the current super-loose monetary stance, gold was caught in the unwinding of positions built on expectations of more funding supplies from central banks.
Spot gold regained 0.6% on Thursday to USD 1,704.80 an ounce after falling 5% to less than USD 1,690 an ounce on Wednesday, for its biggest one-day drop in more than three years, as funds exited the bullion trade on speculation that central banks might be done with easy monetary policies.
Oil recovered after two straight days of losses, with US crude up 0.1% at USD 107.12 a barrel. Brent crude settled at USD 122.66 on Wednesday, rising 10.5% last month for its best monthly performance since February last year.
With the three-year longer term refinancing operation out of the way, the markets' attention is expected to focus on the state of the global recovery, Barclays Capital analysts said.
Data on factory activity in Asia, Europe and the United States will be released later in the session. China's PMI manufacturing report is due at 0100 GMT.
Data released on Wednesday provided further evidence of underlying strength in the US economy, with a gauge of factory activity in the Midwest hitting a 10 month high in February, while the US economy grew slightly faster than initially thought in the fourth quarter.
A Fed report showed the economy expanded modestly in January through mid-February as hiring picked up a bit.