Asian stock markets were subdued on Wednesday while the dollar wallowed near a record low against the euro with investors reluctant to take big positions ahead of the U.S. Federal Reserve's decision on interest rates.
Caution ahead of the U.S. rate call also weighed on commodity prices, with oil extending its slide below $90 a barrel amid expectations of a recovery in Mexican oil exports and an increase in U.S. crude inventories. Gold briefly dipped below $780 an ounce.
Investors are betting the Fed will lower its 4.75 percent funds rate at 1815 GMT, following a 50 basis point cut in September, to limit the damage from the housing slump and tighter credit conditions.
So the decision will be watched carefully, along with any comments, which will be scrutinized for clues to future movements, said Masayoshi Yano, senior manager of investment information at Tokai Tokyo Securities.
At 0211 GMT, Tokyo's Nikkei average (.N225: Quote, Profile, Research) and MSCI's measure of other Asia Pacific stocks were both down about 0.1 percent.
The MSCI index hit a record high on Monday and has risen more than 45 percent this year -- triple the gains for MSCI's key world equity index.
Among major markets in the region, Hong Kong (.HSI: Quote, Profile, Research) and Singapore (.STI: Quote, Profile, Research) edged lower, while South Korea (.KS11: Quote, Profile, Research), Australia (.AXJO: Quote, Profile, Research) and Taiwan (.TWII: Quote, Profile, Research) were little changed.
Investors sold resource stocks after the fall in commodity prices. U.S. crude (CLc1: Quote, Profile, Research) shed a further 54 cents to $89.84, extending Tuesday's $4 tumble from near a record high of $93.80 set on Monday.
We're seeing people square off the positions in oil, gold and base metals ahead of the U.S. rate decision, said Savanth Sebastian, a market analyst at CommSec.
We'll probably see resource stocks being at the forefront of the fall.
Oil and gas producer Woodside Petroleum (WPL.AX: Quote, Profile, Research) fell 2.5 percent, mining giant BHP Billiton (BHP.AX: Quote, Profile, Research) lost 1.3 percent, Japanese oil developer INPEX Holdings (1605.T: Quote, Profile, Research) dropped 3.9 percent and South Korea's zinc producer Korea Zinc (010130.KS: Quote, Profile, Research) shed 3 percent.
Investors also sold some of the region's top exporters such as Canon Inc (7751.T: Quote, Profile, Research) after data on Tuesday showed U.S. consumer confidence fell to a two-year low, fuelling worries about the health of the region's top export destination.
But firms with strong earnings or positive outlooks rose. Panasonic maker Matsushita Electric Industrial (6752.T: Quote, Profile, Research) and Taiwan's No. 2 LCD maker, Chi Mei Optoelectronics (3009.TW: Quote, Profile, Research), both climbed more than 3 percent.
The dollar hovered above a record low versus the yen and a basket of major currencies after reaching fresh lows overnight.
Dealers are showing no hesitation in selling the dollar against the euro as they think the Fed is likely to go for more rate cuts even after the expected on today, said Tsutomu Soma, senior manager of foreign securities at Okasan Securities.
The dollar's trade-weighted index against six major currencies slipped to 76.765 after carving out a new trough of 76.719 in New York.
The euro was trading at $1.4433, not far off a peak of $1.4442 hit on trading platform EBS, and was at 165.61 yen, near a 1-Â½ week high of about 165.90 set overnight.
The yen was likely to struggle with the Bank of Japan (BOJ) seen leaving interest rates unchanged at 0.5 percent due to lingering uncertainty over the outlook for global growth and market conditions.
Investors were also awaiting the BOJ's twice yearly outlook report on the economy and prices due after the one-day policy meeting on Wednesday at 0600 GMT, as well as a news conference by BOJ Governor Toshihiko Fukui expected at 0630 GMT for hints on when Japanese rates will rise.
Japanese government bonds (JGBs) were barely changed ahead of rate announcements from both the BOJ and Fed, with the yield on the benchmark 10-year JBGs down just half a tick at 1.605 percent.