Asian shares head for second weekly loss as Fed rate worries flare

APAC stocks fell on Friday, heading for a second weekly loss as investors worried about the possibility of further Fed tightening and the impact on the US economy.

Short-term Treasury yields in the United States remained near a one-month high, helping the dollar rise against major peers after Richmond Fed President Thomas Barkin added to a chorus of hawkish central bank commentary in recent days.

MSCI's broadest index of Asia-Pacific shares fell 0.54 percent, putting it on track for a 1% weekly decline after falling 1.16 percent the previous week.

Mainland Chinese blue chips fell 0.41 percent, while the Hang Seng fell 1.19 percent.

China's January factory gate prices fell more than expected, indicating that the flashes of domestic demand that fueled consumer prices after the zero-COVID policy ended are not yet strong enough to rekindle upstream sectors.

The Australian benchmark fell 0.56 percent, while the South Korean Kospi fell 0.49 percent.

Japan's Nikkei 225 index rose 0.5% against the trend, boosted by some strong earnings reports.

After the S&P 500 fell 0.88 percent overnight, US equity futures were flat.

"Is inflation subsiding? "That's really the core question for this year," Barkin said in a podcast posted on the Richmond Fed's website, adding that the decline had been "distorted" thus far "by some falling goods prices.

Investors were encouraged at the start of the week after Fed Chair Jerome Powell refrained from adopting a more hawkish stance in response to a much stronger-than-expected jobs report at the end of last week.

"Powell maintained a relatively dovish tone, and markets took that as a green light to rally, but we got a stream of extremely hawkish Fed speak pretty much 24 hours later," said Tony Sycamore, an IG strategist.

"If rates go past that five, five-and-a-quarter percent range that the Fed has previously indicated, markets are definitely not priced for that - absolutely not."

Money markets currently see a peak in the current rate cycle around 5.15 per cent in July.

The two-year Treasury yield eased slightly to around 4.48 per cent in Tokyo, after touching the highest since Jan. 6 at 4.514 per cent overnight. The 10-year yield edged down to around 3.67 per cent after bumping around 3.96 per cent mid-week, also the highest since Jan. 6.

The U.S. dollar index, which measures the greenback against six peers including the euro and yen, ticked up slightly to 103.28, sticking to the middle of its range this week. It touched 103.96 on Tuesday for the first time since Jan. 6 as well.

Meanwhile, crude oil prices dipped in early trade on Friday but were headed for a weekly gain with the market continuing to seesaw between fears of a recession hitting the United States and hopes for strong fuel demand recovery in China, the world's top oil importer.

Brent crude futures fell 28 cents, or 0.3 per cent, to $84.22 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 35 cents, or 0.5 per cent, to $77.71.