Asian stocks fall on nagging Fed rate hike worries

Asian stocks tracked Wall Street losses and the yen fell on Friday as investors remained filled with uncertainty over how aggressively the Federal Reserve would raise interest rates to tackle inflation despite softer numbers earlier this week.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.10 per cent, and Australia's AXJO was down 0.62 per cent.

Japan's Nikkei was the major outlier, surging 2.37 per cent to its highest level since January as markets reopened following a national holiday. The yen fell 1.24 per cent and was trading at 133.39 to the dollar.

The slight easing of inflation readings this week had driven global stocks higher and capped a rising dollar, until a string of Fed speakers put paid to expectations of the central bank going slow on further policy tightening. China's blue-chip stock index posted its biggest jump in more than 3 months on Thursday.

"The Fed is going to do what they said, which is whatever it takes to address inflation, so you are seeing some repositioning around that out of US equities," said Carlos Casanova, senior economist at UBP.

The S&P 500 closed down 0.07 per cent and the Nasdaq Composite lost 0.58 per cent overnight, though the Dow Jones Industrial Average rose 0.08 per cent.

San Francisco Federal Reserve Bank president Mary Daly said on Thursday that while a 50 basis point rate hike next month "makes sense" given economic data, she'd be open to a bigger hike if necessary. The rate is currently in the 2.25 per cent-2.5 per cent range.

Chicago Fed President Charles Evans said he believes the Fed will likely need to lift its policy rate to 3.25 per cent-3.5 per cent this year and to 3.75 per cent-4 per cent by the end of next year, in line with what Fed Chair Jerome Powell signaled after the Fed's latest meeting in July.

And, Minneapolis Fed President Neel Kashkari, the most hawkish of his 18 colleagues said he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9 per cent by year-end and to 4.4 per cent by the end of 2023.

Chewing over those comments, investors were still unsure how set the Fed is.

Odds of a 75 bps hike in September were as high as 68 per cent earlier in the week, but are now around 34 per cent, where they were a week ago.

US 10-year Treasury yields US10YT=RR held firm after rising overnight and were last trading at 2.8766 per cent.

In commodities, Brent crude oil futures fell 0.63 per cent to $98.97 a barrel. US West Texas Intermediate crude was also down, dropping 0.69 per cent to $93.69.

Brent is still on track to gain more than 4 per cent this week, while WTI looks likely to mark a weekly climb of 5 per cent.

Bitcoin, the leading cryptocurrency, shaved some overnight gains and lost 1.22 per cent to trade at $23,916.

Spot gold was down 0.14 per cent at $17,687 an ounce.