U.S. July retail sales rose 0.6 percent, which was stronger than the 0.4 percent forecast in a Reuters poll. Meanwhile, retail sales for the month of June were revised upwards to reflect a 0.3 percent gain from a previously recorded 0.2 percent decline.
The strong showing in retail sales led to an increase in expectations for another Federal Reserve rate hike by the end of the year. Market expectations for at least one new rate hike by the end of the year were at about 54 percent Tuesday, up from just 37 percent on Monday, according to the CME Group's FedWatch tool.
"Markets continue to focus on current low inflation rates, but with the labor market tightening and the growth story looking okay, the prevailing view within the Fed is likely to remain that low inflation is merely 'transient,'" said ING Asia Head of Research Rob Carnell, adding that one more rate hike in December was likely.
The dollar held onto gains after jumping to its highest levels in around three weeks against a basket of currencies on the back of the strong retail sales released overnight. The dollar index stood at 93.872 at 3:00 p.m. HK/SIN after rising as high as 94.139 in the overnight session.
However, one reason gains in the dollar were capped despite the positive data release could be that markets were still keeping an eye on receding geopolitical tensions. "The market does not truly believe the U.S.-North Korea showdown is over," BK Asset Management Managing Director of FX Strategy Kathy Lien wrote in a note.
In currencies, the dollar was steady against the yen, after climbing in the Tuesday session. The greenback last fetched 110.78 yen. That was above the 109 handle seen since the middle of last week when geopolitical tensions over the Korean peninsula ramped up.
Oil prices advanced after markets were pressured by signs of easing petroleum demand in China on Tuesday, according to Reuters. Brent crude rose 0.55 percent to trade at $51.08 a barrel and U.S. West Texas Intermediate gained 0.42 percent to trade at $47.75.
With reporting season underway in Australia, market movers included biopharmaceuticals company CSL, which saw its stock close down 1.50 percent. The company reported full-year underlying net profit after tax rose 24 percent compared to the year before.
Origin Energy saw its shares tack on 5.40 percent by the end of the session after the company reported that full-year results for the year ending on June 30 rose to A$550 million ($430.38 million) compared to the A$365 million seen one year ago. The company chose not to pay a dividend for the second half of the year as it continued to focus on "reducing debt," according to a release on the Australian Securities Exchange.
Meanwhile, Westfield Corporation shares closed up 1.85 percent after the retailer, which operates shopping malls in the U.S. and U.K., announced half-year net profit for the first six months of the year came in at $589 million.
Shares of South Korean aircraft maker Korea Aerospace were on a tear, climbing more than 20 percent early in the trading session. The company's shares had been pressured over the past month after a series of setbacks, including the resignation of its CEO and media reports about fraud allegations.
Meanwhile, shares of Hong Kong-listed China Unicom were halted from trade, according to the Hong Kong Exchange. While the company said in a release that the trading halt was pending an announcement, no further details were provided. The move came against the backdrop of investor expectations regarding ownership reform of the the company's state-owned parent, Reuters reported. The telco operator is expected to release first-half results later on Wednesday.
Geely Auto said Wednesday that half-year net profit came in at 4.34 billion yuan ($648.96 million) compared to the 1.91 billion yuan seen one year ago. Shares of the automaker rose 0.84 percent on the back of the news.
Other notable companies in the region scheduled to report results on Wednesday include Tencent and Cathay Pacific. Cathay's first-half results were originally expected at 12:00 p.m. HK/SIN, but that release was delayed, Reuters reported. Cathay Pacific shares were up 0.69 percent at 3:05 p.m. HK/SIN.
In economics news, the IMF on Monday revised upward its growth forecast for China. The IMF said growth would average 6.4 percent for the period between 2017 and 2021. However, the rosier outlook came with the additional risk of higher debt, the IMF added. It also pushed China to intensify its deleveraging efforts.
Ahead, markets are anticipating the release of the Federal Open Market Committee minutes during U.S. hours.
"With little else in terms of scheduled central bank speak, investors may continue to trade off rate differentials and data releases," OCBC FX Strategist Emmanuel Ng said in a note.
Major indexes on Wall Street closed mostly flat after retail stocks recorded sharp losses.
— CNBC's Fred Imbert contributed to this report.