By Chikako Mogi
TOKYO (Reuters) - Asian shares slipped to their lowest this year on Wednesday as uncertainty over when the U.S. Federal Reserve would begin scaling down its massive stimulus program fanned worries about funds flowing out of the region.
The mood was soured by a drop in U.S. stocks overnight on worries over a shift in the Fed's current policy, but the prospect of less monetary stimulus underpinned the dollar.
"Wariness over an exit from the current Fed stimulus is driving Asian shares lower on worries that the ample money that had been invested here could flee, although I feel that an improving U.S. economy should be seen as positive for many export-reliant Asian economies," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
Comments on Tuesday from two Fed officials added to concerns the world's largest economy will be left with reduced Fed support at some point this year.
Dallas Fed President Richard Fisher said there must be a practical limit to the Fed's balance sheet and the central bank cannot deliver quantitative easing "to infinity," while Kansas City Fed President Esther George said slowing the pace of bond buying would not mean tightening U.S. monetary policy and would help wean financial markets off their dependence on ultra-easy money.
Markets have been buffeted by U.S. stimulus jitters since Fed Chairman Ben Bernanke last month suggested the potential roll back of the massive bond-purchase program this year if the economy improves further. The Fed's quantitative easing has been a major source of support for global markets.
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> slid as much as 0.8 percent to a six-month low, after snapping a four-day losing streak on Tuesday.</.miapj0000pus>
Australian shares <.axjo> shed 1.4 percent to a five-month low as slower-than-expected first quarter growth and weakening demand for metals in China weighed, while South Korean shares <.ks11> fell 0.6 percent. Hong Kong <.hsi> shares dropped 0.6 percent but Shanghai shares <.ssec> were steady.</.ssec></.hsi></.ks11></.axjo>
"The market is taking a breather amid profit-taking on recent gains," said Chung Seung-jae, a market analyst at Mirae Asset Securities, referring to the near 4 percent rise in Seoul shares since mid-April.
Markets showed subdued reaction to HSBC's purchasing managers' index for the services industry, which expanded modestly in May from April.
Daiwa Securities' Yuihama said stability in Japanese equities would help calm Asian bourses, which had lately been taking their cue from the highly volatile Japanese stock market.
Japan's Nikkei stock average <.n225> was down 0.1 percent after inching up as much as 0.3 percent earlier. A reversal in the yen's strength was supportive but investors were cautiously awaiting the unveiling of the government's growth strategy due later in the session. <.t></.t></.n225>
The Nikkei closed up 2.1 percent on Tuesday after hitting a seven-week low earlier in the day. The index, which had charged up to a 5-1/2-year peak less than two weeks ago for a gain of 53 percent since the end of 2012, has been driven sharply lower in recent sessions on worries about slowing growth in China and the Fed's policy outlook.
The dollar was up 0.1 percent against the yen at 100.10, off Monday's three-week low of 98.86. The dollar index <.dxy>, measured against a basket of six key currencies, was steady around 82.809, having moved away from Monday's three-week low of 82.428.</.dxy>
Amid deepening uncertainty over the course of U.S. monetary policy, investors have become even more cautious than usual before monthly nonfarm payrolls data due on Friday as the U.S. central bank has made an improving jobs situation a precondition for softening its strong stimulus measures.
"The taper-debate rumbles but it's a question of when, not if, policy gets less easy. That's probably the lesson from recent 'mixed' data," Kit Juckes, a strategist at Societe Generale in London said in a note to clients.
"I meet plenty of people who think any talk of U.S. rate normalization is premature, but nearly all concede 'new normal neutral' is much higher than here. That's a recipe for a bearish Treasury, bullish USD, cautious credit bias and also for higher volatility," he said.
U.S. crude futures were up 0.5 percent at $93.76 a barrel while Brent was up 0.2 percent at $103.42.
(Additional reporting by Jungyoun Park in Seoul; Editing by Edwina Gibbs and Shri Navaratnam)