Asia stocks gain as Wall Street rises before Fed, dollar stands tall

Asian stocks gained on Wednesday, with sentiment lifting as Wall Street rose before a likely hike in US interest rates, while the dollar held to large gains made as Treasury yields picked up.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5%.

Japan's Nikkei gained 1.9% and Shanghai stocks edged up 0.4%.

The region's outperformers included Australian shares, which surged 1.9%. Yet analysts warned of nerves ahead of one of this year's most anticipated market events.

"We wouldn't be surprised if we see our market get sold off towards the close as investors look to close their positions ahead of the US interest rate decision," said Anthony D'Paul, chief executive of Australian Stock Report.

On Wall Street Tuesday, the Dow added 0.9% and the S&P 500 advanced 1.1%. Bank stocks, which will likely benefit from higher rates, were among the market leaders.

The Federal Reserve is expected to announce a hike in interest rates when its two-day policy setting meeting ends later in the day. It would be the first US rate hike in nearly a decade, signalling the beginning of an end to an expansionary monetary policy that has supplied a tidal wave of liquidity to risk asset markets globally.

With a hike seen as a mostly done deal after more than a year of anticipation, investor focus is fixed on how the Fed might opt to pace its tightening cycle next year. The central bank has hinted that it intends to hike rates gradually.

"(Fed chair) Yellen should stress data-dependence in following up with further tightening next year and will surely not drop any heavy hints about the timing of the next move. No one can be confident how the dollar will emerge from all this but volatility seems assured," wrote Sean Callow, a senior strategist at Westpac.

The dollar index last stood at 98.078, having gained 0.6% on Tuesday.

The dollar was steady at 121.70 yen , pulling further away from a six-week trough of 120.35 struck Monday. The euro traded near $1.0900 after recoiling from a seven-week peak of $1.1060.

Supporting the greenback, Treasury yields rose overnight as gains on Wall Street reduced the appeal of safe-haven bonds and stable US consumer price data supported the case for a Fed rate hike.

In commodities, crude oil dipped after gaining for two successive days. US crude was down 1.3% at $36.87 a barrel. Concerns of global oversupply had sent crude to a seven-year low of $34.53 earlier this week.

Three-month copper on the London Metal Exchange was within distance of a one-week low of $4,554 a tonne struck overnight on the dollar's surge and concerns that a US rate hike could trigger a debt default among highly leveraged miners.

A strong dollar makes dollar-priced metals more costly for non-US investors.

Spot gold bounced modestly to $1,064.20 an ounce following two days of losses. The metal fell to a six-year low of $1,045.85 earlier this month on a firmer greenback and prospects of higher US interest rates, which would dent the allure of non-yielding gold.