By Kevin Buckland
TOKYO Asian stocks eased back from more than two-week highs on Tuesday as traders squared positions heading into a key U.S. inflation report, while gloomy Chinese trade data also kept risk sentiment in check.
The dollar stabilized against major peers as U.S. yields remained elevated amid increased confidence that the banking sector is not headed for a wider crisis.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.25%, erasing part of Monday's 0.9% rally.
Hong Kong's Hang Seng dropped 0.85%, weighed down by losses for tech shares, while Australia's benchmark and South Korea's Kospi each lost about 0.2%.
Mainland Chinese blue chips turned lower after early gains, with the benchmark CSI 300 dropping 0.8%.
Trade data released on the day showed an unexpected decline in imports and slower exports growth, underlining the struggles facing the world's second-biggest economy despite the lifting of COVID curbs in December
"When it comes to the Chinese market, you have the question coming from investors now about the strength of the recovery," said Frank Benzimra, Societe Generale's Hong Kong-based head of Asian equity strategy.
"So when you have some trend data which is not as good as people expect, it raises doubts," he said.
Meanwhile, Japan's Nikkei jumped nearly 1%, led by a surge for steelmakers after JFE Holdings forecast higher profit.
U.S. S&P 500 E-mini futures signaled a 0.1% decline at the reopen after the equity benchmark ended little changed on Monday.
Investors are keenly focused on Wednesday's U.S. consumer inflation report after Federal Reserve Chair Jerome Powell said last week that policy decisions will be "driven by incoming data," while signaling a likely pause in the rate hiking cycle.
At the same time, Friday's robust payrolls report prompted investors to dial back expectations for the timing and size of the Fed's first rate cut.
Money markets currently expect two quarter point rate cuts by year-end, with a risk of a third.
Economists forecast a slight moderation in the core inflation number to 5.5% annually for April, matching February's print, which was the lowest since the end of 2021.
"The surprise lies on the downside" for the inflation data, particularly the risk of a drop below 5%, said Tony Sycamore, a market analyst at IG markets.
"If we were to get a 4 print, I think you're going to get a great deal of fanfare, at least in the initial instance," with U.S. equities likely to push back to the top of recent ranges, he said.
At the same time, Sycamore cautioned against becoming too sanguine on the U.S. banking sector, after the market's mood was lifted by a Fed survey of lenders that suggested no imminent credit crunch.
U.S. Treasury Secretary Janet Yellen said overnight that regulators stand ready to mobilize the same tools used in recent bank rescues if necessary.
"It looks like they are trying to put out the fires for now, but whether they've managed to fully extinguish what's going on, I don't think that's going to happen to be honest," Sycamore said.
The debt ceiling standoff gives another reason for caution, with Yellen warning that failure to lift the debt limit would cause a huge hit to the U.S. economy and weaken the dollar as the world's reserve currency.
The dollar index, which measures the currency against six major peers, was little changed at 101.44 after climbing overnight from near the bottom of its trading range since the middle of last month.
The 10-year Treasury yield eased off a one-week high in Tokyo to last sit just below 3.5%.
Oil prices slipped, paring strong gains from the previous two sessions. Brent crude was down 30 cents at $76.71 and U.S. West Texas Intermediate (WTI) crude fell 26 cents to $72.90.
(Reporting by Kevin Buckland; Editing by Stephen Coates and Shri Navaratnam)
