By Lisa Twaronite and Nichola Saminather
TOKYO/SINGAPORE (Reuters) - Asian shares fell and the dollar stood tall on Thursday, after the U.S. Federal Reserve revived market expectations that it might still be on track to raise interest rates by year-end.
While Wall Street ended a volatile session with solid gains, apparently underpinned by the Fed's vote of confidence in the U.S. economy, MSCI's broadest index of Asia-Pacific shares outside Japan extended losses to 1 percent.
The reaction in Asia was typical of recent tentative trading in global markets as the backdrop of slowing global growth left investors anxious over the Fed's policy path.
Indeed, S&P 500 e-mini futures edged down about 0.3 percent in early Asian trading.
In overnight trading, U.S. Treasury yields and the dollar rose while Wall Street initially sold off and then reversed, after the Fed explicitly referred, in its statement at the end of its two-day policy meeting, to conditions necessary "to raise the target range at its next meeting."
Reference to a particular meeting is rare for the U.S. central bank.
"There is no doubt an earlier move may give the markets greater clarity and more confidence," said Chris Brankin, chief executive officer of TD Ameritrade Asia in Singapore. "However, focusing on the timing is feeding uncertainty."
Another key signal was what it did not say about global conditions. When it held policy steady last month, the Fed expressed concern that a slowing global economy could threaten the U.S. outlook, so investors viewed the absence of these worries in the latest statement as opening the door to a rate hike this year.
"The biggest market risk has been the removal of the premium in the U.S. dollar on the theory that the risks to the global and domestic economy is/was enough to stay until next year," Evan Lucas, market strategist at IG in Melbourne, wrote in a note. "The market has been forced to reset its view on central bank differentials."
The dollar declined 0.4 percent to 120.70 yen after spiking as high as 121.26 on Wednesday from a session low of 120.02.
The dollar index, which tracks the U.S. currency against a basket of six of its major peers, fell about 0.2 percent to 97.559, but remained near the 2-1/2-month peak of 97.818 scaled after the Fed's message.
The euro extended its losses, slipping about 0.1 percent to $1.0929 after skidding to a 2-1/2 month low of $1.0826 overnight.
The European Central Bank last week signaled its readiness to inject more stimulus to boost prices and the People's Bank of China followed with its sixth interest rate cut in less than a year and a reduction in the amount of cash banks must hold as reserves. [nL8N12M20T] [nL3N12N405]
"Attempting to gauge the impact of potential policy easing by the ECB and recent interest rate cuts by the PBoC on the Fed's reaction function" is difficult, economists at Australia and New Zealand Banking Group wrote in a note.
"However, the language in the statement suggests that any concerns that the Fed has in regards to a stronger U.S. dollar have been offset by reduced financial market volatility and the prospect that policy easing in the above economies may act to boost global demand," they said.
Investors are speculating that the Bank of Japan could also expand its easing steps to keep economic recovery on track, but unexpectedly strong industrial output data on Thursday reduced the chance of the BOJ acting at its meeting on Friday.
Japan's Nikkei gave up early gains to slide 0.1 percent.
The Reserve Bank of New Zealand kept interest rates steady on Thursday as expected but reiterated that some further easing seemed likely eventually.
The New Zealand dollar was down about 0.4 percent at $0.6671.
U.S. crude oil futures shrugged off the stronger dollar and retained most of their gains after soaring more than 6 percent overnight as the government reported an inventory build-up, which triggered a short-covering rally after three days of losses.
U.S. crude gave up about 0.3 percent to $45.82 a barrel. Brent slipped 0.1 percent to $48.91.
Spot gold edged up about 0.4 percent in Asian trade to $1,160.06 an ounce, after skidding more than 1 percent in the previous session in the wake of the Fed's hawkish message.
(Editing by Shri Navaratnam)
