By Swati Pandey
SYDNEY (Reuters) - Asian shares eased on Wednesday amid fears of rising U.S. protectionism as President Donald Trump fired his Secretary of State, regarded as a moderate in his administration, and eyes hefty tariffs on Chinese imports.
The combination left investors scurrying for safety as global equities took a knock, the dollar fell and bonds rose.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, retreating from a 1-1/2 month high hit on Tuesday.
Australian shares stumbled 0.8 percent in early trade, while Japan's Nikkei dropped 0.8 percent. South Korea's Kospi index declined 0.7 percent.
The weakness followed losses on Wall Street, with the Dow off 0.7 percent, the S&P 500 down 0.6 percent and the Nasdaq Composite down 1.0 percent.
Trump fired Secretary of State Rex Tillerson on Tuesday after a series of public rifts over policy on North Korea, Russia and Iran, replacing his chief diplomat with hawkish CIA Director Mike Pompeo.
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Critics said the move would sow more instability in the volatile Trump administration and marks the departure of another moderate who sought to emphasize the United States' strong ties to its allies.
Separately, Trump is also looking to impose tariffs on up to $60 billion of Chinese imports, targeted at information technology, consumer electronics and telecoms, two people who had discussed the issue with the Trump administration said.
"Tillerson's departure has left some worrying that it provides a green light to those in the office pushing for more protectionist measures," analysts at ANZ Bank said in a note to clients. "Protectionism is on the rise."
Investors suspect policy makers who favour protectionism will also seek to use the currency as a trade weapon, if not overtly then through benign neglect.
Tillerson's exit and the potential for new import duties on China coincided with subdued U.S. consumer price data with annual core inflation, at 1.8 percent, meeting expectations.
All that put together meant dollar weakness across a basket of currencies. It was a touch firmer at 106.63 yen but still not far from a recent 15-month trough of 105.23.
The euro rose overnight to edge towards a recent one-month top of $1.2446. It was last at $1.2393.
"Many traders feel that equities could have ended higher if it weren't for 'Rexit'," analysts at Citi said referring to Tillerson's departure.
It was the fear of higher inflation and in-turn faster U.S. rate hikes that had hit global shares in early February. But Tuesday's data did little to change market expectations of Fed rate rises with an increase next week now fully priced-in.
"While Tillerson's exit has been rumoured for months, it speaks to persistent Trump turnover and potentially, more market-alarming, protectionist headlines," Citi analysts added.
Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi.
In commodities, oil prices inched up after two straight days of losses after data showed a smaller-than-expected build in crude inventories.
U.S. crude rose 18 cents to $60.89.
Spot gold was steady at $1,326 an ounce.
(Reporting by Swati Pandey; editing by Richard Pullin)