Asian stocks fell on Thursday after racking up strong gains in recent weeks, while the euro slipped further as Greece's borrowing costs reached a new high.
Tokyo's Nikkei index slipped 0.8 percent to 11,204 points as a stronger yen provided investors an excuse to cash out after the market reached an 18-month high earlier in the week.
But many market watchers saw it as only a mild correction, pointing to expectations for improving corporate earnings and continued strong economic growth in much of Asia.
Though it's still hard to say for sure, I think this is just an adjustment, said Takashi Ushio, head of the investment strategy division at Marusan Securities.
After all, we have (company) results really starting up in about two weeks, and these are likely to prove supportive.
U.S. stocks fell as much as 0.7 percent overnight after a top Federal Reserve official said interest rates should not stay low for much longer. While that is not seen as the majority view at the central bank, the comments gave investors an excuse to take profits.
Ultra-low interest rates and cheap money have helped fuel strong market gains in much of the world over the last year.
The yen gained both on a retreat in risk appetite due to Greece and a drop in U.S. Treasury yields following strong demand at a 10-year auction, putting pressure on shares of Japanese exporters like Sony Corp, which fell 2 percent.
The euro was weak around $1.33, its softest level in two weeks, and grinding nearer and nearer to its March trough of $1.3267, which at the time was the lowest it had been since May.
Traders say loss-limiting sell orders would likely trigger below that point and they then expect some support at round numbers such as $1.3200 and $1.3100. But with the euro firmly in a downtrend, $1.30 is seen as the next psychological point.
There is evidence of contagion from Greece in global markets today, said Greg Gibbs, a forex strategist at the Royal Bank of Scotland in Sydney. It's not too severe but it's there. We're seeing the yen a bit stronger and the euro a bit weaker.
The MSCI's broad measure of shares in the Asia-Pacific outside Japan was down 0.45 percent after running up gains of 4.86 percent since the beginning of the year.
But there is underlying support in regional stock markets with top Asian companies at their most optimistic since the global financial crisis nearly two years ago.
A Reuters check-up of 100 leading Asian companies, from Japan to India, showed government stimulus-fueled recovery across Asia had filtered through to the corporate sector, with the technology and resources industries leading the pack.
Of the 100 companies, 59 had a 'positive' to 'very positive' rating on their six-month outlook, its highest since Reuters started the review in mid-2009 and up from 38 in the December review.
It certainly looks like we are in growth mode now and that companies are going to have record earnings in 2010, said Todd Martin, Hong Kong-based Asia Equity Strategist at Societe Generale.
In Japan, analysts said that while the Nikkei could possibly dip below its 25-day moving average, currently around 10,870, this would be brief. But rises above the key psychological level of 11,500 were also difficult over the short term due to a lack of strong buying factors.
The Nikkei's RSI (relative strength index) slipped to 66, below the overbought level of 70 and above, after hitting a high of 76 earlier this week.
Market players said expectations for earnings, widely predicted to come in strongly, as well as increased interest in Japanese shares as marked by rising volume, should support the index.
Volume on the Tokyo exchange's first section rose to nearly 2.4 billion shares on Wednesday, its highest in a month.
We've seen increasing volumes in recent days and investors will be looking for bargains, so any falls are likely to be limited, said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.
AUSSIE DOLLAR EXTENDS GAINS
The Australian dollar firmed to about $0.9273 after March employment data showed 19,600 jobs had been added but stopped short of the $0.93 resistance, at which point analysts said there were a large number of options barriers.
The jobs data was within market expectations, backing the case for local interest rates to rise further and boosting the yield appeal of the Aussie dollar.
Oil and gold both slipped in Asian trade. Gold was at about $1,146.20 an ounce after climbing as high as $1,152.75 an ounce, its strongest since mid-January, in New York on Wednesday on worries about Greece's fiscal problems.
London copper futures extended losses, pulling back from a 20-month high struck this week on fears a rally of nearly 10 percent over the past two weeks had run ahead of itself.
Three-month copper on the London Metal Exchange dipped to $7,885, having touched $8,005 in the previous session and $8,010 on Tuesday, its highest since August 2008. (Editing by Vikram S Subhedar)