By Wayne Cole
SYDNEY (Reuters) - Asian shares made guarded gains on Wednesday as surprising strength in U.S. consumer spending reassured investors the recovery in the world's largest economy had not been derailed, lifting the dollar and Wall Street.
A pullback in the yen was welcomed by Japanese shares, with the Nikkei bouncing 1.4 percent after suffering its sharpest daily drop in five months on Tuesday.
Progress elsewhere was patchy with investors suffering whiplash after several days of wild swings. Australia made the early running with a bounce of 0.6 percent, while Seoul managed a rise of 0.2 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan was dead flat.
The dollar kept most of its gains at 104.18 yen, leaving behind a low of 103.00, though trade was tempered by a heavy slate of option expirations.
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The currency had sprung ahead on Tuesday after U.S. retail data soothed the hurt done by last week's disappointing payrolls report. While the headline measure of retail sales rose only a modest 0.2 percent, a core measure favoured by analysts beat all expectations with a jump of 0.7 percent.
The upbeat news was slightly tempered by downward revisions to the previous month, but the data still pointed to healthy consumer demand for the fourth quarter.
"Growth in final sales, particularly household consumption, appears to have picked up sharply in Q4," said Barclays economist Peter Newland. The bank lifted its forecasts for economic growth in the quarter to an annualised 3.5 percent.
That, combined with a burst of merger activity and earnings beats by Wells Fargo and JPMorgan , helped lift the Dow 0.71 percent. The S&P 500 added 1.08 percent and the tech-laden Nasdaq jumped 1.69 percent.
The better economic news pushed 10-year U.S. Treasury yields up 5 basis points to 2.87 percent, while slugging Eurodollar and Fed funds futures.
Price moves have been wild recently as the market tries to second-guess the speed of tapering by the Federal Reserve, and when it might actually start raising interest rates.
Two of the most hawkish of Fed officials, Dallas Fed chief Richard Fisher and Charles Plosser at the Philadelphia Fed, on Tuesday advocated sticking with tapering.
The euro zone contributed to the flow of improving economic news by reporting industrial output climbed 1.8 percent in November, above forecasts and a positive for growth in the fourth quarter.
That helped keep the euro firm at 142.42 yen, after a rally of 1.3 percent on Tuesday, while leaving it stable on the U.S. dollar at $1.3671.
In commodity markets, a firmer dollar and rising equities shoved gold back to $1,243.19 an ounce, and off a high of 1,255.00 hit Tuesday.
Oil prices were little changed after a mixed performance overnight. U.S. crude was 6 cents easier at $92.53 a barrel, while Brent was yet to trade having finished at $106.39 the previous session.
(Editing Shri Navaratnam and Eric Meijer)