Asia Risk Rally Wanes; BOJ Meeting Watched

Gains in Asia continued for a second session on Thursday but momentum was tepid due to a lack of fresh catalysts as investors look ahead to the Bank of Japan's policy decision due Friday.

Amid out-performers, Hong Kong stocks surged 1 percent ahead of first quarter earnings reports while upbeat economic growth data lifted Seoul's benchmark Kospi to its highest levels in nearly two weeks.

Meanwhile, the Nikkei 225 was steady at the 13,920 mark and the Shanghai Composite fell 1 percent. Australian markets are shut for a national holiday and will resume trading Friday.

Investors will be watching Bank of Japan chief Haruhiko Kuroda on Friday for signs of any further stimulus as the central bank meets for the first time after unveiling a blockbuster easing program earlier this month.

(Read More: After 'Shock and Awe,' What Next From the BOJ?)

Adding to Asia's sluggish mood was a near flat close on Wall Street overnight. The Dow broke its three-day rally as investors digested a batch of corporate earnings against a disappointing durable goods orders report.

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In a report dated April 25, analysts at Societe Generale wrote "Asian emerging markets are suffering from local factors. China is facing challenges of economic re-balancing, Korea is facing increased competitiveness from Japan, and recently the region has also been impacted by the risk of a flu pandemic."

"We keep our Neutral recommendation on Asia and in the very short term we would suggest being more defensive with a tactical exposure to the Asean region," they added.

Earnings Boost Hong Kong

Hong Kong's outperformance was largely spurred by a 4.8 percent rally in shares of China Minsheng Bank, the seventh-largest bank in China, after it posted a 20 percent increase in first quarter net profit.

China Pacific Insurance added 1.3 percent after reporting a 241 percent rise in profits.

Nikkei Up 0.6%

Japan's benchmark stock index closed at its highest levels in nearly five years but disappointing earnings reports from blue-chip stocks kept gains limited.

Shares of Canon and Nintendo tanked 6.3 and 5.5 percent respectively, after both firms posted a fall in profits. Meanwhile, Shiseido shed 4 percent after the cosmetics maker estimated a $148 million loss for the fiscal year ended March.

Weekly capital flows data revealed Japanese investors continued repatriating foreign assets for a sixth straight week. Economists were hoping that the Bank of Japan's radical stimulus program would spur an outflow of capital.

"In general, flow data in Japan is becoming a more closely watched characteristic as Japanese investors consider deploying capital overseas in search of higher yield. An outflow of yen would suggest continued weakness in the currency," said Eric Viloria, senior currency strategist at

(Read More: Why the Hype Over Dollar-Yen at 100 Is Overdone)

Shanghai Widens Losses

Fears of a housing crash kept mainland investors at bay after bank loans to the property sector rose over 16 percent in the first quarter. This comes after data last week revealed that new home prices increased in March from a year earlier.

Shares of major property developers sunk with China Merchants Property skidding 7 percent while Poly Real Estate and Gemdale lost over 3 percent each.

Airline stocks were lower as fears over the bird flu outbreak increased after a Taiwan man was diagnosed with the deadly virus. China Eastern fell 2.8 percent and China Southern slipped 2 percent.

"While the bird flu, Sichuan earthquake and weak first-quarter GDP have generated powerful headwinds, we see early signs of fundamental changes, and are optimistic on the XI-Li (Xi Jinping and Li Keqiang) New Era," wrote analysts at investment bank Jeffries in a report.

Kospi Hits 1,950

Seoul's benchmark index rose after first quarter GDP rose at its fastest pace in two years, climbing 0.8 percent from the previous quarter. Analysts say expectations are growing for the Bank of Korea (BOK) to cut interest rates as the yen's slide against the South Korean won hurts the bottom-line of domestic exporters.

(Watch Now: Kospi Poised For Short-Lived Rally: Chartmaster)

"The economic profile continues to suggest that an interest rate cut is needed to lift growth. Given the subsiding inflationary pressure and the weak domestic activities, we call for a policy rate cut of 25 basis points in the second quarter," wrote analysts at ANZ in a research note.

Automakers lent support to the index with Hyundai Motors rallying over 5 percent after its earnings met forecasts. Kia Motors gained 4.3 percent.