By Lisa Twaronite
TOKYO (Reuters) -- Asian shares edged lower and the dollar stood tall on Thursday, after the U.S. Federal Reserve rekindled market expectations that it might still be on track to raise interest rates by year-end.
U.S. Treasury yields and the dollar rose while Wall Street initially sold off and then reversed, after the Fed made an explicit reference in its statement at the end of its two-day policy meeting to conditions necessary "to raise the target range at its next meeting." Reference to a particular meeting is rare for the U.S. central bank.
Another key signal in the statement was what it did not say about global conditions. The Fed held policy steady last month and expressed concern that a slowing global economy could threaten the U.S. outlook, and so the absence of these worries in the latest statement was viewed as opening the door to a rate hike this year.
"What left the door wide open was the removal of the sentence 'Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,'" strategists at Rabobank said in a note to clients.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 percent.
S&P 500 e-mini futures edged down about 0.2 percent in Asian trading, after a volatile session on Wall Street ended with solid gains.
Japan's Nikkei added 0.9 percent, buoyed by data released before the open that showed Japan's industrial output rose 1.0 percent in September from the previous month, far better than economists' median forecast for a 0.5 percent drop.
The better data came ahead of the Bank of Japan's policy meeting on Friday, at which some investors had begun to speculate that the central bank could expand its easing steps to support the economic recovery.
The dollar was down 0.2 percent at 120.87 yen after spiking as high as 121.26 on Wednesday from a session low of 120.02.
The euro extended its losses, slipping about 0.1 percent to $1.0919 after skidding to a 2-1/2 month low of $1.0826 overnight.
The dollar index, which tracks the U.S. unit against a basket of six of its major peers, was down about 0.2 percent at 97.594, but still not far from a 2-1/2-month peak of 97.818 scaled after the Fed's message.
The New Zealand dollar, meanwhile, was down about 0.3 percent at $0.6675 after the country's central bank kept interest rates steady on Thursday as expected but reiterated that some further easing seemed likely eventually.
U.S. crude oil futures shrugged off the stronger dollar and extended gains after soaring more than 6 percent overnight as the government reported an inventory build-up, which triggered a short-covering rally after three days of losses.
U.S. crude was up about 0.2 percent at $46.01 a barrel. Brent was down 0.2 percent at $48.95.
Spot gold edged up about 0.2 percent in Asian trade to $1,158.01 an ounce, after skidding more than 1 percent in the previous session in the wake of the Fed's hawkish message.
(Editing by Shri Navaratnam)