Commodities came off the boil, dragged lower after China's central bank took steps to tighten monetary policy and soak up money from the financial system.
Industrial metals bore the brunt of commodities selling, which saw Shanghai copper erase a near-five percent gain and steel futures hit their downside limit. The weakness also extended into oil, which reversed early gains to trade half a percent lower, and gold also retreated.
The Australian dollar pared some of its gains hurt by profit-taking after jumping to a 15-month high against the yen and a two-year peak against the euro on the strong retail sales data, which added to the chances of another rise in interest rates as early as February.
China's central bank surprise hike in the auction yield of its three-month bills for the first time since mid-August prompted high-yielding currencies such as the Australian dollar to come off intraday peaks.
The U.S. dollar jumped against the yen after new Japanese Finance Minister Naoto Kan said he wanted the yen to weaken more. The dollar surged to the day's high of 92.82 yen, up from around 92.20 yen just before Kan's comments reached the market.
Many investors are turning their focus to U.S. non-farm payrolls data due out on Friday to wait for trading direction. The rate of job losses at U.S. private employers slowed in December to 84,000 from 145,000 in November but still exceeded the 72,000 expected by economists.
Investors are waiting for the U.S. jobs report on Friday but the current climate of the market is one of investors willing to take risk, said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking.
Speaking in Shanghai, James Bullard, president of the St. Louis Federal Reserve Bank, said the market in the United States is improving and the economy is close to the point when the unemployment rate will start to fall.
He also said house prices were stabilizing, and that housing starts were likely to steady and cease to be a drag on growth.
Australian stocks <.AXJO> fell 0.5 percent, as surprisingly strong retail sales data stoked expectations for an interest rate rise next month, weighing on rate sensitive stocks such as banks.
Japan's Nikkei <.N225> slipped 0.5 percent, while South Korea's Kospi <.KS11> dropped 1.3 percent.
Samsung Electronics' <005930.KS>, riding a strong price recovery in its memory chips business and benefiting from booming flat screen TV sales, issued estimates that signal a promising year for consumer electronics. Its shares were off more than 3 percent after rising to a record ahead of the news.
The MSCI Index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS>, which has been trading at 17-month highs, edged down 0.7 percent. A similar Thomson Reuters index <.TRXFLDAXPU> shed 0.7 percent.
If China were to show a clearer stance toward liquidity tightening in coming months, there is a possibility that market players would link it to the yuan's revaluation and raise worries about commodity and share prices, said Jun Kato, senior chief analyst at Shinkin Central Bank Research Institute.
Gold slipped on Thursday after reaching a three-week high above $1,140 per ounce the previous day, weighed down by investors' caution ahead of the U.S. jobs data. Spot gold was changing hands around $1,133.40 an ounce as of 0611 GMT.
Crude oil for February delivery fell back below $83 on Thursday after settling up $1.41 a day earlier, its highest close since Oct 9, 2008.
The Australian dollar shone after retail sales rose 1.4 percent in November, strengthening expectations of a further interest rate hike, which stands at 3.75 percent after three 25-basis-point increases in as many months.
Rates at the moment are just too low for an economy that has proven very resilient and has come out of a global recession rather unscathed, said Helen Kevans, an economist at JPMorgan.
We expect rates at 4.5 percent mid-year and 5 percent by year-end.
The Aussie rose as far as $0.9268 after the data before falling back to $0.9203. It shot up as far as 85.54 yen, its highest since late September 2008.
The dollar index <.DXY>, which measures the value of the greenback against a basket of currencies, edged up 0.2 percent to 77.633. It lost some ground against the euro the previous day after the release of the Fed minutes.
(Additional reporting by Jungyoung Park in SEOUL and Kaori Kaneko and Aiko Hayashi in TOKYO; Editing by Jan Dahinten)