By Chikako Mogi
TOKYO (Reuters) - Asian shares and the Australian dollar eased on Wednesday as strong economic data rallied U.S. stocks to record highs, throwing market focus back on to the possibility of reduced Federal Reserve monetary stimulus in the future.
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was down 0.3 percent at 467.33, moving towards Friday's five-week low of 464.99.</.miapj0000pus>
But losses were limited, with sentiment underpinned by the rise in the Dow Jones industrial average <.dji> to another record high on Tuesday after data showed U.S. home prices accelerated by the most in nearly seven years in March while consumer confidence picked up in May to its highest in more than five years.</.dji>
The rally in global markets overnight was driven by bets on some funds would leave emerging markets go back to their home countries, and investors choosing to focus on the growth implications of strong U.S. data, ignoring that it could add to speculation of the Federal Reserve scaling back its bond-buying program, said Credit Agricole CIB's senior strategist Frances Cheung in Hong Kong.
"So, back in Asia, investors may be more worried about expectations for the Fed's tapering off because Asian markets have been benefitting a lot from the easy money from the U.S.," she said. Asian equities markets were likely undergoing a consolidation and moving sideways while investors try to sort out their story, she added.
Australian shares <.axjo> eased 0.1 percent while South Korean shares <.ks11> rose 0.4 percent. Hong Kong shares <.hsi> fell 0.8 percent but Shanghai shares <.ssec> were up 0.1 percent.</.ssec></.hsi></.ks11></.axjo>
"The falling Australian dollar is leading offshore investors to offload some of those local assets, that's leading to price declines. They're trying to avoid getting negative real returns as the Australian dollar continues to weaken," said Tim Radford, global analyst at stockbroker Rivkin, of Australian stocks.
Speculation about the Fed's policy has weighed on the Australian dollar, which has skidded nearly 8 percent in May, the largest monthly drop since September 2011. The Aussie plumbed its lowest in 19 months on Wednesday after key support around $0.9581 finally gave way.
"Breaking through important support levels like that means it won't settle down for a while. It would be great of course if you bought it now and it returned to its previous level, but it's best not to try that," said Kenichi Asada, manager of forex at Trust & Custody Services Bank.
The Nikkei stock average <.n225> was up 0.1 percent, giving up more of the early gains after opening up 1.3 percent. <.t></.t></.n225>
The Nikkei slumped 7.3 percent on Thursday, its largest single-day loss since the March 2011 earthquake and tsunami, as global financial markets were shaken by weak industrial production in China and concerns about the Fed toning down its aggressive monetary stimulus sooner than previously thought.
Tuesday's stock rally lifted benchmark 10-year U.S. Treasury yield to a 13-month peak around 2.17 percent.
Japanese government bond prices eased slightly on Wednesday following the sharp fall in U.S. debt prices.
The dollar fell 0.2 percent against the yen to 102.13, off a two-week low of 100.66 yen hit on Friday, but still below a 4-1/2 year peak of 103.74 yen touched on May 22.
The dollar index <.dxy> measured against a basket of six key currencies was up 0.1 percent to remain near its highest since July 2010 of 84.498 reached on May 23.</.dxy>
U.S. crude futures fell 0.2 percent to $94.86 a barrel and Brent eased 0.1 percent to $104.10.
Gold edged higher, supported by strong physical demand after prices fell 1 percent the previous day, but gains are likely to be limited by persistent outflows from exchange-traded funds.
(Additional reporting by Thuy Ong in Sydney and Sophie Knight in Tokyo)