Asian markets were mixed Tuesday as fresh fears that the US Federal Reserve will push interest rates higher than hoped played off against growing optimism over China's economic reopening.
After a strong start to the week in the region, traders tracked a big drop on Wall Street that came on the back of data showing a forecast-busting jump in activity in the US services sector last month.
The news -- combined with Friday's bigger-than-expected print on November jobs -- dented optimism that the Fed's monetary tightening campaign was finally paying off, which would give it room to take a less hawkish approach into the new year.
Markets had been running higher ahead of the jobs figures after a surprise drop in inflation and comments from Fed boss Jerome Powell that the bank would likely raise rates at a slower pace.
"Outstanding news from the vast services-based US economy is devastating for market participants keen to see evidence of the US economic disintegration," said SPI Asset Management's Stephen Innes.
"Coming as it did on the heels of Friday's jobs report, which indicated that the rumours of the US economic demise were greatly exaggerated, the market immediately moved into 'good news is bad' mode, which saw investors ride roughshod over the dovish pivot camp."
Bets have increased on borrowing costs going higher than five per cent next year -- from the current 3.75 to 4.0 per cent -- before the bank takes a break, with no cuts seen until 2024.
All three main indexes on Wall Street lost more than one per cent and Asia fluctuated in early trade.
Hong Kong swung between gains and losses, having soared around 15 per cent over the past week on China's easing of strict Covid containment measures.
Shanghai inched up along with Tokyo and Manila. But Sydney, Seoul, Singapore, Wellington, Taipei and Jakarta were in the red.
The dollar dipped slightly but held most of the gains made Monday after the services data release.
The mood in Asia remains largely positive owing to the prospect of China rolling back some of the harsh measures that have been in place for almost three years and have hammered the giant economy.
But analysts said the country would not likely see a complete end to the zero-Covid policy for several months.
Oil prices climbed around one per cent Tuesday, having dropped heavily the two previous days, on expectations that a reopening will boost demand in the world's biggest importer of the commodity.
Key figures around 0230 GMT
Tokyo - Nikkei 225: UP 0.3 per cent at 27,902.11 (break)
Hong Kong - Hang Seng Index: DOWN 0.1 per cent at 19,495.73
Shanghai - Composite: UP 0.3 per cent at 3,220.21
Euro/dollar: UP at $1.0511 from $1.0495 on Monday
Dollar/yen: DOWN at 136.58 yen from 136.78 yen
Pound/dollar: UP at $1.2211 from $1.2186
Euro/pound: UP at 86.08 pence from 86.06 pence
West Texas Intermediate: UP 1.0 per cent at $77.72 per barrel
Brent North Sea crude: UP 1.0 per cent at $83.50 per barrel
New York - Dow: DOWN 1.4 per cent at 33,947.10 (close)
London - FTSE 100: UP 0.2 per cent at 7,567.54 (close)