By Tom Westbrook
SYDNEY Asia's stock markets were mixed on Wednesday with growth concerns dragging on China's equities while shares gained in Japan and Australia after healthy U.S. company earnings and retail data added to hopes that a recession there can be avoided.
Dovish remarks from a European Central Bank policymaker boosted bonds and dragged the euro lower. Hotter-than-expected inflation lifted the New Zealand dollar a little and stoked some market nerves ahead of British CPI due later in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3%, with a 1.3% drop in Hong Kong offseting gains of 0.6% in Australia and 0.1% in South Korea.
Japan's Nikkei rose more than 1% to touch a two-week peak. Overnight the S&P 500 rose 0.7% to hit a three-month high, with results propelling bank shares. Futures were flat in Asia.
Headline U.S. retail sales data came in below forecasts, but core sales which exclude food, fuel and building materials, rose a solid 0.6% in June and had economists lifting GDP forecasts.
"You can sense the probability of a soft landing," said Tapas Strickland, head of market economics at National Australia Bank in Sydney. "Core inflation is coming down and there's momentum from the consumer."
The Atlanta Fed's influential GDP Now tracker has the U.S economy growing an annualised 2.4% in the second quarter, slightly higher than it's prediction of 2.3% a week earlier.
Morgan Stanley, Bank of America and Bank of New York Mellon shares rose sharply on strong results and an upbeat outlook overnight. Microsoft shares rose 4% - adding $100 billion in market value - after announcing charges for artificial intelligence features in its office software.
Soft Chinese growth data on Monday and the lack of any urgent policy response kept the mood dreary in Hong Kong, where consumer focussed stocks led losses.
INFLATION RISKS
A rally in Europe led global bond markets after ECB governing council member Klaas Knot said hikes beyond next week's meeting were "by no means a certainty."
"That the language stemmed from an often-hawkish voice certainly turned heads and drove European sovereign debt markets stronger and lower in yield," said Brian Daingerfield, head of G10 currency research at NatWest Markets in New York.
Two-year German bund yields fell almost 8 basis points to 3.177%. Benchmark 10-year U.S. Treasuries fell slightly and were steady at 3.7794% on Wednesday. [EUR/GVD]
That knocked euro from 17-month highs and its gains stopped sliding dollar in its tracks. The common currency was at $1.2245 in the Asia session. [FRX/]
The yen slipped a fraction to 139.11 per dollar and Japanese government bonds rallied following with the Bank of Japan's governor sticking to his script that policy shifts are still some time away. The Fed, ECB and BOJ all meet next week.
British inflation data due at 0600 GMT is the next major calendar item and traders are expecting a fall to a still-uncomfortable 8.2% annual pace. Surprises on the upside - which occurred in New Zealand - could unwind Tuesday's gilt rally if it looks like forcing the Bank of England to hike further.
New Zealand inflation came in at 6% year-on-year, which was a slowdown from a reading of 6.7% a month earlier, but drove up the kiwi and two-year swap rates as markets price in rates staying higher for longer.
"All up, these data show that risks to the inflation outlook remain firmly to the upside," said analysts at ANZ.
"While annual headline inflation fell sharply, which is helpful for inflation expectations, the details suggest persistence in non-tradables inflation."
Brent crude oil futures were steady at $79.64 a barrel after gaining overnight. Gold, which pays no income, held gains made as yields fell and bought $1,975 an ounce.
(Editing by Lincoln Feast.)