Asian shares rose on Friday, looking to extend three straight quarters of gains, while the dollar strengthened against most major currencies after hawkish comments from a senior U.S. Federal Reserve official.
MSCI's index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> was up 0.27 percent on the day after touching its highest level since May 2008, prompted by optimism on global economic growth.
Japan's Nikkei <.N225>, however, was down 0.1 percent, erasing early gains.
Oil kicked off the new quarter in positive fashion with U.S. prices climbing after closing at their highest in 2-1/2 years on Thursday against the backdrop of continued fighting in Libya and unrest in the Middle East.
Gold fell on more tough inflation talk from U.S. central bankers after notching a 10th quarterly gain.
Investors are treading cautiously ahead of the latest payroll data from the United States later on Friday.
Another month of solid U.S. hiring, expected in the 200,000 area, should reinforce expectations of further global economic expansion but also of an accelerated shift in policy focus among central bankers to stem inflationary pressure.
At the moment we're getting dragged higher by the momentum we're seeing in the U.S. economy, said IG Markets analyst Ben Potter in Melbourne.
We could be at the risk of some profit-taking today as people look ahead to tonight's session but that doesn't seem to be the case at the moment.
Signs of improving business activity and rising inflation globally have led the U.S. Fed and the European Central Bank to ratchet up their inflation rhetoric, causing traders to second-guess whether U.S. and European rates will be on hold this year.
In the U.S., Minneapolis Fed President Narayana Kocherlakota told the Wall Street Journal on Thursday that the Fed could raise rates by the end of 2011, far sooner than expected by financial markets. Most analysts do not expect rate hikes until the second half of 2012.
INFLATION TALK BOOSTS DOLLAR
A recent spate of hawkish comments from Fed officials have helped boost the dollar and U.S. bond yields with two-year yields rising to 0.84 percent, the highest in six weeks.
The dollar index <.DXY>, which tracks its performance against a basket of major currencies, was up 0.3 percent at 76.071. The greenback has rebounded against the yen, a move that has propelled Asian stock markets because it would help the region's exporters.
The dollar climbed to a six-week high against the Japanese currency in early trading. It has recovered from a record low of 76.25 yen on March 17 before G7 central banks intervened to halt the yen's rise. It last traded at 83.66 yen.
The euro also strengthened against the yen, hitting a fresh 10-month high, in the wake of a weaker-than-expected tankan business survey from the Bank of Japan.
Growing expectations of the Fed hiking rates and the BOJ leaving rates steady have widened the yield differential between two-year U.S. and Japan government debt. That gap was last near 63 basis points, the widest since early February.
Japan will likely stick to a near-zero rate policy as the world's No. 3 economy faces the risk of a slowdown due to last month's natural disasters and the current nuclear crisis.
In the latest development, a local newspaper reported the government will take control of Tokyo Electric Power <9501.T> whose shares and public image have been hammered after a series of missteps and mistakes in its handling of the quake-stricken Fukushima nuclear plant.
The ongoing tension in Africa and the Middle East and the festering public debt problems in Europe are other factors that threaten global growth.
Those concerns have receded at least for now, analysts say, as most economies have showed steady growth, which will further stoke the rise in oil, food and commodity prices.
U.S. crude was up 28 cents at $107.00 a barrel, but Brent crude dipped 6 cents to $117.30.
Spot gold traded at $1,430.70 an ounce, down from $1,436.48 late in New York on Thursday, after hitting a record high of $1,447.40.
(Reporting by Chikafumi Hodo in TOKYO,; Ian Chua in SYDNEY,; Lewa Pardomuan and Randy Fabi in SINGAPORE; Editing by Sugita Katyal)