Asian shares edge higher, dollar rally takes a breather

Asian shares nudged higher on Tuesday, tracking small gains on Wall Street, while the US dollar paused after a sharp rally as month-end flows lift sentiment and investors adjust to expectations of more interest rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.25% higher but was set to end the month down about 6%. Japan's Nikkei rose 0.44%, while Australia's S&P/ASX 200 index gained 0.51%.

China shares was up 0.4% while Hong Kong's Hang Seng index was 1% higher but was on track to end its three month winning streak as the China reopening rally loses steam.

"The reopening story doesn't seem to be providing much uplift currently," ING economists said.

China shares have also been weighed down by rising geopolitical tension, with US-China relations the dominant uncertainty at the forefront of investor minds.

ActivTrades market analyst Anderson Alves said month-end flows will likely drive short-term price action as traders rebalance portfolios and market exposure.

"Investors are likely to be monitoring any escalation from the Russia-Ukraine war," Alves said.

"Any concrete action from China in support of Russia could be seen as a strong rationale for a derisk and deleverage from Asian exposure."

Overnight, US stocks eked out a slight gain as investors engaged in some bargain hunting after last week's steep losses, as jitters persisted about coming interest rate hikes to tame a stubbornly high inflation rate. .N

Data on Monday showed US core capital goods orders accelerated in January, beating forecasts, while contracts to buy previously owned US homes rose the most in more than 2-1/2 years in January.

Monday's data comes after a hotter-than-expected personal consumption expenditure report on Friday reinforced expectations of the US Federal Reserve needing to stay on its hawkish path for longer.

Fed futures now reflect rates peaking at around 5.4%, implying at least three more hikes from the current 4.50% to 4.75% band, and some chance of 50 basis points in March.

Barclays and Natwest on Monday said they believe the Fed could raise rates by as much as half a percentage point in March, well above the quarter-point that markets have priced in.

In the currency market, sterling was last trading at $1.206, down 0.02% on the day, having jumped 1% overnight after Britain struck a new trade deal with the European Union, which brightened the outlook for the post-Brexit UK economy.

The euro was down 0.07% to $1.06, after rising 0.6% on Monday.

The dollar index which measures US currency against six other peers, rose 0.048% and was set to snap a four month losing streak.

US crude CLc1 rose 0.13% to $75.78 per barrel and Brent LCOc1 was at $82.29, down 0.19% on the day.