Asian shares steadied on Thursday as investors took to the sidelines, waiting for more clues over the timing and extent of any further stimulus to tackle the euro zone's debt crisis and support global growth.
MSCI's broadest index of Asia-Pacific shares outside Japan was nearly unchanged, while a weaker yen helped push Japan's Nikkei stock average up 0.8 percent.
U.S. stocks, the dollar and most commodities markets rose on Wednesday while the euro and U.S. Treasury prices fell after data showing U.S. industry output rose 0.6 percent in July. The report followed strong July retail sales and July employment data released earlier in the month.
"Although economic data remain mixed, signs of stabilization continue to emerge," Barclays Capital analysts said in a note, adding that recent U.S. data has scaled back expectations for the Federal Reserve to embark on another round of bond buying at its meeting in September.
"An undoing of market expectations on Fed easing has been reflected in higher U.S. yields, but has yet to affect market volatility, which remains at low levels. We see both channels supporting the USD in the coming days. The lack of news in the euro area belies tensions there, as key European decisions lie ahead," they said.
Greek Prime Minister Antonis Samaras will next week hold his first meetings with euro zone leaders since taking office, aiming to assure them he will honour a pledge for more austerity while seeking more time to pull it off.
The dollar rose to a one-month high against the yen around 79.15 yen but eased against the euro, which traded up 0.1 percent against the dollar at $1.2303.
Brent crude rose 0.3 percent to $116.55 a barrel while U.S. crude added 0.1 percent to $94.44.
Bond yields jittery
Markets have been driven by expectations for policy responses since the European Central Bank earlier this month suggested it could start buying sovereign bonds to ease borrowing costs for Spain, under certain conditions.
Sluggish U.S. growth in the second-quarter and global growth significantly undermined by the euro zone crisis have also raised hopes for the Fed to take further easing steps.
While generally tepid growth prospects would justify more action, government bond markets have reacted negatively on uncertainty over the prospect of any Fed easing, as recent U.S. data has pointed to recovery in third-quarter.
Markets will be watching the Jackson Hole meeting of central bankers and economists at the end of the month, U.S. jobs data due early in September and the ECB's policy meeting early next month for clues over policy actions, analysts said.
The 10-year Japanese government bond yield rose to a two-month high of 0.850 percent on Thursday, 13 basis points above its nine-year low of 0.720 percent hit in July.
Benchmark 10-year Treasury yields extended a two-week rising trend to hit a two-and-a-half month high of 1.81 percent on Wednesday, up sharply from a record low 1.38 percent touched on July 25.
A slew of data is due later on Thursday, including U.S. housing starts and building permits for July, weekly jobless claims and the Philadelphia Federal Reserve Bank's August business activity survey.
"From the point of their impact to long-term U.S. yields, these data warrant attention," said Junya Tanase, chief currency strategist at JPMorgan Chase. "If they are weak, it could refuel
expectations for the Fed's further quantitative easing and potentially lead to yields falling back," he said.
Following a bunch of dismal data earlier this month, China suggested it could also take more stimulus steps.
Premier Wen Jiabao was quoted by state media as saying on Wednesday that China's economy faces big headwinds though cooling inflation is giving the government more leeway to manoeuvre monetary policy.
Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index barely changed.
