Asian Shares Spike, Dollar Takes A Pause

On Tuesday, Asian stocks edged higher, tracking small gains on Wall Street, while the US dollar paused after a sharp rally as month-end flows lifted sentiment and investors adjusted to expectations of more interest rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.25 percent, but the month was expected to end down about 6%. The Nikkei 225 index in Japan rose 0.44 percent, while the S&P/ASX 200 index in Australia rose 0.51 percent.

China shares were up 0.4%, while Hong Kong's Hang Seng index was up 1%, but it was on track to end its three-month winning streak as the China reopening rally faded.

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

China shares have also been dragged down by rising geopolitical tensions, with U.S.-China relations dominating investor concerns.

Month-end flows, according to ActivTrades market analyst Anderson Alves, will likely drive short-term price action as traders rebalance portfolios and market exposure.

"Investors are likely to be watching for any escalation in the Russia-Ukraine conflict," Alves said.

"Any concrete action by China in support of Russia could be interpreted as a strong rationale for derisking and deleveraging from Asian exposure."

Overnight, U.S. stocks eked out a slight gain as investors sought bargains following last week's steep losses, as concerns about upcoming interest rate hikes to tame stubbornly high inflation persisted.

On Monday, data showed that core capital goods orders in the United States increased in January, exceeding expectations, while contracts to buy previously owned U.S. homes increased the most in more than two and a half years.

Monday's data comes after a stronger-than-expected personal consumption expenditure report on Friday reinforced expectations that the US Federal Reserve will need to maintain its hawkish stance for a longer period of time.

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

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

Sterling was last trading at $1.206, down 0.02 percent on the day after jumping 1% overnight after Britain struck a new trade deal with the European Union, brightening the outlook for the UK economy post-Brexit.

The euro fell 0.07 percent to $1.06 after rising 0.6% on Monday.

The dollar index, which compares the US currency to six other currencies, rose 0.048 percent, snapping a four-month losing streak.

US crude rose 0.13 percent to $75.78 per barrel, while Brent fell 0.19 percent to $82.29 per barrel.