Most Asia markets gained on Friday, retracing earlier losses, despite a fresh stream of hawkish commentary from U.S. Federal Reserve officials.
Japan's benchmark Nikkei 225 index ended up 0.54 percent, or 89.69 points, at 16,736.35, erasing earlier losses, and the yen strengthened a bit against the U.S. dollar, possibly in a risk-off shift toward the safe-haven currency. The dollar-yen pair was at 110.20 at 2:23 p.m. SIN/HK, after spending much of the session hovering around 110, compared with levels as high as 110.34 Thursday.
Hong Kong's Hang Seng Index added 1.06 percent by 3:19 p.m. SIN/HK after dropping for the past two sessions. On the mainland, the Shanghai Composite ended up 0.68 percent, or 19.03 points, at 2825.94, and the Shenzhen Composite gained 1.07 percent, or 19.067 points, to finish at 1794.95.
Australia's S&P/ASX 200 index ended up 0.53 percent, or 27.958 points, at 5351.30 as the energy and materials sub-indexes rose 0.71-0.93 percent, retracing some recent losses. South Korea's Kospi inched up 0.05 percent, or 0.89 point, to 1947.67 after wavering between positive and negative territory.
The muted reaction to the possibility of tighter U.S. monetary policy comes as markets aren't pricing in much chance of a potential Fed hike, with analysts saying market indicators suggested a roughly 30 percent likelihood of a June step higher.
That may be because some market players are taking the Fed's signals with grains of salt.
"People are already starting to wonder how much truth there is to a summer rate hike, or if it is one of the Fed's countless charades," said Mark Matthews, head of research for Asia at private bank Julius Baer, in a note Friday. "They don't want people to think there will never be a rate hike, so they have to have the threat of one out there."
But he noted that the Fed doesn't want the U.S. dollar to appreciate — a likely outcome of a rate hike. He added that the Fed is also known to call off plans to hike rates if there are sudden market moves in stocks, the dollar and emerging markets.
It's not clear that a relatively subdued response to the prospect of a hike would necessarily bite market players, analysts said.
"The markets are complacent about the risks of further tightening over the next couple of years," Julian Jessop, chief global economist at Capital Economics, said in a note Thursday. "Context, however, is everything: the gradual normalization of U.S. interest rates will remain contingent on favorable economic and financial conditions that should limit the downside for asset prices."
Fed officials continued to send clear signals to the market on Thursday that a June interest rate hike could be on the cards.
New York Fed President William Dudley said that June was definitely a live meeting and that he was quite pleased market expectations for the probability of a June or July rate hike had moved up.
Those comments raised analysts' radar over the Fed's likely steps.
"If one of the most dovish members of the central bank thinks that a rate hike is imminent, then perhaps investors really need to re-think and re-price their expectations for tightening this year," said Kathy Lien, managing director for foreign-exchange strategy at BK Asset Management, in a note late Thursday.
Additionally, Richmond Fed President Jeffrey Lacker said on Bloomberg Radio that he was comfortable with four Fed rate hikes in 2016.
The remarks followed the release of the minutes for the Fed's April meeting, which sounded remarkably clear hawkish signals to the market.
That sent , which measures the greenback against a basket of currencies, up to tap highs not seen since late March, before trimming gains on Thursday. The dollar index was at 95.233 at 3:21 p.m. SIN/HK, after climbing as high as 95.502 Wednesday.
In Asia trade, U.S. crude oil futures for June delivery rose 0.77 percent to $48.53 a barrel by 3:21 p.m. SIN/HK after settling nearly flat. Brent was up 0.68 percent at $49.14 a barrel. Recent concerns about supply disruptions in Canada, Libya, Nigeria and Venezuela have helped to bolster oil prices to around levels not seen since late last year.
Among energy plays, Australia-listed Woodside added 0.33 percent and Santos rose 2.60 percent. In Japan, Inpex added 0.49 percent.
Airline shares around the region were mixed in the wake of disappearance of EgyptAir flight MS804 in the Mediterranean Sea, as well as an increase in oil prices, which are denominated in U.S. dollars.
Jonathan Galaviz, senior airline industry analyst at Global Market Advisors, said in a note Thursday that the apparent crash of MS804 would be a short-term financial negative for airlines with exposure to the Middle East, particularly European and Gulf state carriers.
Air New Zealand shed 2.24 percent and Virgin Australia fell 1.75 percent; both are exposed to weaker home currencies. Japan Airlines also fell 1.20 percent. But Singapore Airlines, which has faced tough competition from the Gulf carriers, added 0.47 percent by 3:22 p.m. SIN/HK, and Cathay Pacific, which may get insulation from rising oil prices as its home currency, the Hong Kong dollar, is pegged to the greenback, rose 2.36 percent by 3:22 p.m. SIN/HK.
Gold shares were mixed after the price of gold fell as low as $1,244.60 an ounce in the U.S. session Thursday. Spot gold was essentially flat at $1,254.20 an ounce at 3:23 p.m. SIN/HK.
A stronger dollar weighs on the price of gold, in part because it lessens the yellow metal's attractiveness as a potential hedge against inflation.
But Julius Baer's Matthews noted that on the charts, the gold price is near its 50-day moving average and could have a bullish bounce from here.
Australia-listed Alacer Gold tacked on 4.28 percent and Newcrest rose 1.17 percent, erasing earlier losses. China gold plays were mixed, with Jiangxi Copper, which also mines the yellow metal, seeing its Hong Kong-listed shares fall 0.35 percent by 3:24 p.m. SIN/HK, while its mainland-listed ones ended up 0.39 percent. The Hong Kong-listed shares of gold miner Zijin Mining fell 0.84 percent by 3:24 p.m. SIN/HK.
Shares of Hong Kong's Li & Fung added 0.47 percent by 3:24 p.m. SIN/HK after shares of its major customer, Wal-Mart, surged more than 9 percent overnight on better-than-expected quarterly results.
The closed down 91.22 points, or 0.52 percent, at 17,435.40, the S&P 500 closed down 7.59 points, or 0.37 percent, at 2,040.04 and closed down 26.59 points, or 0.56 percent, at 4,712.53.
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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1