Asian shares regained some poise on Friday after a tough week in which the gathering risk of a US rate rise lifted Treasury yields toward nine-year highs and boosted borrowing costs across the region.
Activity was mainly confined to book-squaring for the end of the month and quarter, and moves in markets were modest at best.
MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.2 per cent, but was still down a sizeable 2 per cent for the week so far.
Japan's Nikkei was off 0.2 per cent, though South Korea managed to recoup 0.5 per cent. Shanghai shares firmed 0.3 per cent but were flat on the week.
Fed rate hike prospects
Many markets in the region have been cold-shouldered this week as investors priced in a greater probability of a rate hike from the Federal Reserve in December. Fed funds futures imply around a 73 per cent chance of a move at the December 12-13 policy meeting.
As a result, yields on two-year Treasuries reached a near nine-year top before settling at 1.46 per cent on Friday. They had been as low as 1.254 per cent early in September.
Trump's tax proposals
Adding to the upward pressure was President Donald Trump's proposals for steep tax cuts which, if passed, could benefit US corporations' profit margins. The plan, however, lacked any detail on how it might be paid for and faced much opposition in Congress.
“As tax negotiations intensify, significant procedural, fiscal and political constraints are likely to become apparent," cautioned Richard Franulovich, an analyst at Westpac, while noting the economic benefits of the plan were also in doubt.
“The size of the tax cut is simply too large to be realistic and repealing deductions will prove politically difficult.”
Still, a tax cut that made US equities more attractive while lifting the dollar and Treasury yields would likely prove negative for emerging markets, particularly those that relied heavily on foreign investment.
The risk alone was enough to rattle share, bond and currency markets in Asia on Thursday, and they will remain vulnerable to headlines on the tax package as it moves through Congress.
Dollar reprieve
The jump in Treasury yields proved a much-needed tonic for the US dollar. Against a basket of currencies the dollar index was up 0.14 per cent on Friday at 93.217, to hold gains of 1.1 per cent this week.
The euro hovered at $1.1778, having bounced from a six-week trough of $1.1715, but was still down 1.5 per cent for the week so far. If it remains there, that would be the largest weekly loss since November 2016. The dollar was also on track for its third week of gains on the Japanese yen at 112.66, just off a peak of 113.26.
Wall Street
On Wall Street, the Dow had ended Thursday with a minor gain of 0.18 per cent, while the S&P 500 added 0.12 per cent and the Nasdaq was flat.
All three were at or near record highs, stirring concerns about rich valuations. The forward price-to-earnings ratio (P/E) on the S&P stood at 17.9 compared with its long-term average of 15.1, while the forward P/E on the Russell is 26.3 against an average of 21.3.
Important data on inflation from the European Union and the United States are due later in the session, along with economic growth figures in Canada.
China manufacturing data
Early readings on Chinese manufacturing are out on Saturday ahead of a week-long holiday in the Asian giant.
The EU also faces more political uncertainty on Sunday when Catalan separatists are set to defy Spanish efforts to block an independence referendum.
Crude oil
In commodity markets, oil prices were near to chalking up another weekly gain as investors wagered that efforts to cut a global glut are working and the demand outlook is improving.
Brent was 24 cents higher at $57.65 a barrel, heading for a fifth weekly climb and a 10-per cent gain for September. US crude rose 1 cent to $51.57 a barrel.