Asian stocks drifted lower after hitting a one-year high earlier on Wednesday and the dollar was stuck near a one-year low as investors, hopeful of an economic recovery, held back from moving more money into risky assets.
European shares were set to stumble at the start, with futures on the Euro Stoxx 50 slipping 0.3 percent in early trade.
The dollar, a haven for investors in difficult times, has been battered this week as market participants have favored high-yielding investments and emerging markets.
Gold's surge above $1,000 has powered gains in other commodities and raised worries that money is being shifted out of the dollar.
The Australian dollar slipped after retail sales surprisingly dropped in July and housing lending cooled. That raised questions about how soon the central bank would start raising interest rates.
There has been sufficient strength in recent data and in comment from policymakers for a shift to a tightening bias at the October meeting, said Patrick Bennett, Asia FX and rates strategist at Societe Generale, referring to the Reserve Bank of Australia.
What is appropriately being called into question is the timing and extent of the action that follows.
Asia is at the forefront of unwinding ultra-loose monetary policies put in place to stem the shock from the financial crisis. With the growth revival in some countries proving unexpectedly strong, some policymakers worry that cheap money is fuelling asset bubbles.
Australia and South Korea are among those seen closest to pulling the trigger on higher rates, with investors focusing on a Bank of Korea meeting on Thursday for clues on how quickly a rate hike could come. The bank is expected to keep its base rate unchanged at 2 percent.
South Korean authorities are among the most concerned about a property price bubble. Reports on Wednesday showed household mortgage lending slowed in August after tighter controls, while money supply growth slowed in July.
Portfolio managers have been undaunted by the prospect of normalizing monetary policy, with the process expected to be drawn out as officials remain cautious about the recovery's staying power.
South Korean Finance Minister Yoon Jeung-hyun said that it plans to take a gradual approach to unwinding emergency policies and sees any exit strategy at premature for now.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dipped 0.5 percent and gave up early gains that pushed the benchmark to a one-year peak.
So far this year the MSCI APXJ is up 53 percent, outpacing the nearly 23 percent rise in world shares <.MIWD00000PUS> and 10.5 percent increase in the MSCI index of Japanese shares <.MSCIJP>.
Losses were limited across Asia, with Japan's Nikkei average <.N225> dipping 0.8 percent and South Korea's KOSPI <.KS11> shedding 0.7 percent following the 0.9 percent rise in the U.S. S&P 500 <.SPX> on Tuesday.
Consumer discretionary, telecom and technology shares were the biggest losers by sector, suggesting some profit-taking in the biggest gainers this year.
LG Electronics <066570.KS>, the world's No. 3 handset maker, was the biggest drag on the KOSPI, shedding 8 percent after Nomura cut its price target and revised down its profit estimate for the fourth quarter.
Some analysts believe that investors who were slow to seize on the rally in stocks and commodities this year may buy on any pull-backs in coming months, keeping risky assets underpinned.
I suspect the incentives of portfolio managers to bet on a global recovery should overwhelm those betting on a relapse in growth, said Stephen Jen, managing director of macroeconomics and currencies at BlueGold Capital Management, a hedge fund in London.
In currencies, the dollar was little changed and held near a one-year low against a basket of currencies at 77.268 <.DXY>.
The euro was flat at $1.4490 after having jumping as high as $1.4535 the previous day.
Euro/dollar implied volatility also jumped as the rise triggered barrier options and hedging from option trading desks.
Traders said more barrier options were seen at $1.4550 and higher, potentially blocking further gains, adding that a steep implied vol curve suggested that players were not betting on a decisive run higher.
The dollar's slide, which analysts partly blamed on model funds dumping the currency due to the break higher in gold prices, has taken it through chart levels that suggest a deeper drop may be in store.
The dollar index has fallen through the 61.8 percent retracement of its rally from a record low hit in March 2008 to its highs reached in March this year, putting it on track to revisit the record low.
For a graphic: http://r.reuters.com/caw55d
Gold rose $6.95 an ounce to $1002.15 and hovered just below the high of $1007.45 hit on Tuesday, putting it on course to target the record high of $1030 hit in March 2008 when the dollar hit its all-time lows.
Traders said news that Barrick Gold will sell $3 billion of stock to eliminate all of its fixed-price gold hedges was positive news for bullion.
The rise in gold helped limit losses in the Australian dollar, which has the strongest correlation of major currencies with gold due to Australia's hefty metal exports. The Aussie was down 0.1 percent at $0.8610 but off a session low of $0.8584.
Safe-haven government bonds edged up on the dip in stocks.
Korean government bond futures were up 11 ticks at 109.98 after hitting a five-week high of 110 in early trade, getting a boost in part from expectations that South Korean bonds will soon be added to Citigroup's World Government Bond index.
(Additional reporting by Jungyoun Park in Seoul; Charlotte Cooper and Satomi Noguchi in Tokyo; Editing by Jan Dahinten)