Asian markets were mostly flat Thursday after the U.S. Federal Reserve kept rates steady while the euro hit a record high against the yen on the prospects for a euro zone rate rise.
Stocks were initially buoyed by Fed comments downplaying the potential for a deeper U.S. economic slowdown, but uncertainty about inflation pared back gains and fueled a rally in the euro against the yen on expectations that the European Central Bank would raise rates next week.
The Fed signaled it was in no hurry to raise rates any time soon, supporting government bond prices that had been sold off sharply on expectations central banks around the world would tackle price pressures aggressively.
Still, given that oil prices remain above $130 a barrel and persistent rises in food prices, investors were cautious about the outlook for the region. Oil fell nearly 2 percent to $134.55 a barrel after government data showed a surprise rise in stocks.
Japan's Nikkei 225 Average extended its losing streak to six days -- its longest this year -- edging down 0.05 percent as lower oil prices dented trading houses such as Mitsubishi Corp. Trade was lackluster ahead of a flood of economic data as growing uncertainty about the global economy thinned the market, although defensive shares such as pharmaceuticals managed to swim against the tide as investors sought safety.
Seoul shares closed flat despite gains by exporters such as Samsung Electronics after the Fed's rate hold, as inflation worries continued to weigh on sentiment.
Australian shares rose 1.3 percent, driven up by rallying bank stocks such as National Australia Bank, on financial year-end bargain hunting and after the Federal Reserve gave a more upbeat view on the U.S. economy.
Hong Kong shares closed 0.8 percent lower, boosted by a technical rebound in property stocks on signs the U.S. is in no hurry to raise interest rates and gains in conglomerate Hutchison Whampoa. Shares in billionaire Li Ka-shing's flagship company jumped 2 percent after brokerage CLSA upgraded the stock to buy on expectations of positive recurrent earnings in 2008 as its 3G business nears break-even. Its shares have been weighed down by five years of start-up losses in its 3G business.
Singapore's Straits Times Index ended 0.3 percent lower, with banks such as DBS Group reversing early gains to close in the red. Straits Asia Resources jumped 4.5 percent as the coal miner said it expected its boundary extension of an Indonesian mine to be approved, after recent speculation that approval may be delayed due to alleged corruption investigations into Indonesia's forestry department.
Chinese shares closed 0.1 percent down, with financial and steel stocks falling on profit-taking after surging on Wednesday. Industrial & Commercial Bank of China sank, while leading steelmaker Baoshan Iron and Steel also fell. In the past ten days the index has repeatedly tested and held chart support at 2,723-2,732 points, the late February 2007 and March 2007 lows.