Asian stocks fell on Thursday as weak U.S. retail sales highlighted the long road to economic recovery, prompting profit-taking on winning bets in equities, higher-yielding currencies and commodities over the past two months.
The retreat in Asian shares tracked the overnight drop on Wall Street after retail sales posted an unexpected drop in April and suggested that consumers were still struggling from job losses, falling home prices and tighter credit.
The dollar edged up from a four-month low hit the previous day as investors gradually shifted funds away from the safe-haven U.S. currency and into riskier assets on hopes the global economy had bottomed out from its deepest recession since World War Two.
Oil prices pulled further away from a six-month peak reached this week, while the Australian dollar edged up but was off a seven-month high reached earlier in the week.
Government bonds gained on the troubles in stocks, helping lift Japanese government bond futures off a nearly seven-month low hit the previous day.
Analysts said markets were likely seizing on the poor U.S. data to take profits on positions that global growth was slowly picking up, which drove up Asian shares more than 50 percent at one point from their low mark in early March.
But more portfolio managers are seen shifting money into equities and other riskier assets, having sat on the sidelines for several months following last year's historic sell-off across many markets.
The market needs to take a break, and any pull-backs are going to be met with some more money coming in from the sidelines, said Chris Kimber, a client adviser with Bell Potter Securities in Sydney.
Ratings agency Standard & Poor's said in a report on Asian economies on Thursday that it was too early to say the global economy has bottomed.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dropped more than 3 percent but was still up some 20 percent since the start of the year and 46 percent from its year low struck in March.
On Wednesday, the S&P 500 <.SPX> shed 2.7 percent, and futures on that U.S. stock index were down slightly in Asia.
Japan's Nikkei average <.N225> fell 2.6 percent, while Hong Kong's Hang Seng index <.HSI> shed 3.2 percent.
Investors are also keeping an eye on the results of India's general election. The ruling Congress-led coalition is slightly ahead of the opposition Hindu nationalists-led alliance, but both groups have fallen short of a parliamentary majority, according to early projections.
DOLLAR LIMPS UP, BONDS JUMP
The dollar limped up from a four-month low hit on Wednesday, partly on the revival of risk-taking but also because its break through the 200-day moving average against the euro sparked wide selling.
Chart technicals for the U.S. currency have turned negative since the break of the widely tracked 200-day moving average, which has signaled turning points against the euro in the past.
The euro slipped 0.2 percent to $1.3562 after having jumped to $1.3722 the previous day, threatening to push above the peak reached in March that would likely add fuel to the rise.
The dollar index, a gauge of its performance against six major currencies, edged up 0.2 percent to 82.689 <.DXY>. Against the yen, the dollar was little changed near 95.40 yen.
The dollar's slide had reinforced a jump in gold and oil prices. Gold was steady at $925.60, while U.S. crude dipped 29 cents to $57.73 after having climbed as $60.08 this week.
Battered bonds recovered as stocks lost ground.
JGB futures were up 0.45 point at 136.95 after having fallen to their lowest since late October on Wednesday. The benchmark 10-year JGB yield was down 3 basis points to 1.420 percent.
South Korean government bond prices rebounded sharply in early trade after the nation's top financial policy maker gave another cautious outlook for the economic recovery.
Korean government bond futures rose 24 ticks, bouncing from a one-month low hit this week.
(Editing by Mathew Veedon)