Asia's stocks fall as investors are concerned about interest rate hikes

Asian shares fell on Friday, while the dollar remained at six-week highs, as economic data and hawkish comments from Federal Reserve officials fueled concerns that the US central bank will continue to tighten policy.

Overnight Labor Department data revealed that monthly producer prices increased in January, while a second report showed that the number of Individuals filing new claims for unemployment benefits surprisingly declined last week.

The S&P 500 ended substantially lower on Thursday, as the week's economic data highlighted persistent inflation and a relatively solid economy.

MSCI's broadest index of Asia-Pacific equities outside Japan was 0.68% lower, on track for its third straight week of losses, tracking Wall Street. The Nikkei 225 index in Japan sank 0.47%, while the S&P/ASX 200 index in Australia fell 0.55%.

China's stock market declined 0.18%, while Hong Kong's Hang Seng Index fell 0.09%.

"Inflation was hot no matter how you sliced it," said Tapas Strickland, head of market economics at National Australia Bank. "The latest data confirms the Fed's judgement that rates must be raised and held higher for a longer period of time."

Interest rates in the United States are expected to peak at 5.28% in July and remain over 5% until the end of the year, according to the market.

Two Fed officials said on Thursday that the US central bank should have raised interest rates more than it did earlier this month, and that future rate hikes are needed to return inflation to target levels.

"The incoming data have not changed my belief that we will need to raise the fed funds rate to 5% and maintain it there for some time," Cleveland Fed President Loretta Mester said.

At its Jan. 31-Feb. 1 policy meeting, the Fed opted to moderate the pace of rate hikes and lifted its benchmark overnight interest rate by 25 basis points to the 4.50%-4.75% range after a series of jumbo rate increases last year.

But since then economic data has pointed to tight labour market and sticky inflation keeping the pressure on the central bank to remain on its tightening path.

"After the CPI (consumer price index) report this week brought back concerns on the pace at which inflation is cooling, January PPI (producer price index) also saw a hotter than expected print," Saxo Markets strategists said.

They said both goods and services prices increased in January, raising doubts over the goods disinflation narrative and continues to support the thesis that services inflation is sticky.

The increasing expectations of the Fed hiking rates further has pushed U.S. Treasury yields higher, with the yield on 10-year Treasury notes up 3.7 basis points to 3.880%, highest since Dec. 30.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 4.2 basis points at 4.661%.

The dollar index, which measures U.S. currency against six major rivals, rose 0.182% to 104.30, a fresh six week high.

The euro was down 0.22% to $1.0650, its lowest since Jan. 9, Sterling was last trading at $1.1965, down 0.23% on the day.

The yen weakened 0.33% to 134.37 per dollar on the day, having touched six-week low of 134.50 earlier in the session.

Elsewhere, U.S. crude fell 0.36% to $78.21 per barrel and Brent was at $84.81, down 0.39% on the day.