Asian shares tumbled on Wednesday as markets wagered the Federal Reserve would raise interest rates earlier than expected, sending US bond yields higher and keeping the dollar well bid near 14-month highs against a basket of major currencies.

Some regional tech shares took a hit after Apple Inc stock fell as the initial excitement over its announcement of new products including a watch, larger iPhones and a mobile payment service, quickly evaporated.

Asia-Pacific shares

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1.2 per cent. If sustained, it would mark the largest fall for the regional index in nearly six months.

Japan’s Nikkei bucked the trend, rising 0.3 per cent on the yen’s fall as well as expectations of more buying by the country’s pension funds.

European shares are expected to fall follow suit, with both Germany's DAX and France's CAC40 falling as much as 0.3 per cent.

On Wall Street, Apple’s decline and higher bond yields pushed stocks down. The S&P 500 lost 0.7 per cent, the Dow fell 0.6 per cent and the Nasdaq Composite dropped 0.9 per cent.

Fed rate hike

The dollar remained well bid after economists at the San Francisco Fed shocked markets by publishing a paper saying investors expects a slower rate hikes than the US policymakers themselves expect.

The research paper ramped up expectations that the Fed will signal an earlier-than-expected increase in rates at its policy-setting meeting on September 16-17, possibly by omitting mention of its commitment to keep rates low “for a considerable time’’.

“The markets had probably become too complacent about the Fed keeping rates low for a long time because of the Ukraine crisis and so on,’’ said Makoto Noji, senior strategist at SMBC Nikko Securities.

Dollar, euro

The dollar's index against a basket of major currencies rose as high as 84.519 on Tuesday, not far from the July 2013 peak of 84.753. A break above that would take it to levels unseen since July 2010. It last stood at 84.136.

The euro fell to a 14-month low of $1.2860 on Tuesday before rebounding to trade at $1.2933. The greenback rose to a six-year high of 106.475 yen and last traded at 106.26 yen.

The spectre of rising US interest rates dented higher-yielding currencies that had attracted investors seeking bigger returns.

“The U.S. economy is in good shape. But look at the rest of the world; China, Europe, Japan and Brazil. They don’t look particularly good. So people may question whether these markets can withstand future US rate hikes,’’ said a fund manager at a US asset management firm.

The Australian dollar hit a 5 1/2-month low of $0.9168 on Wednesday.

Gold prices

As the dollar rose, gold prices hit a three-month low of $1,247.15 per ounce on Tuesday and last stood at $1,255.19.

US bond yields also climbed as investors reassessed the Fed's rates outlook, with the 10-year yield hitting a five-week high of 2.509 per cent. It was at 2.493 per cent in early Asian trade on Wednesday.

The rate-sensitive two-year yield rose to 0.560 per cent, near its three-year peak of 0.590 per cent hit in late July.

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