Asian stocks eased on Monday as the dollar hovered near six-week highs on views the Federal Reserve might raise rates sooner than expected, putting pressure on oil and commodity prices.
Regional shares posted steep gains on Friday after a slew of Chinese data showed the world's third-largest economy remained on a brisk recovery path.
But the positive sentiment failed to carry over on Monday, as the dollar's strength led investors to pull funds out of the region.
As the U.S. dollar strengthens, naturally Asian markets are coming off, said Daphne Roth, head of Equity Research at ABN Amro private banking in Singapore, pointing to a inverse correlation between the dollar index and Asian stocks.
But I believe it's profit-taking. It's not the beginning of a downtrend, she said.
The MSCI index of Asia Pacific stocks outside Japan fell almost 0.9 percent.
Asian stocks have rallied more than 60 percent this year.
The Thomson Reuters index of Asia ex-Japan equities was also down 0.9 percent.
The dollar index <.DXY> hovered near 6-week highs, while the euro struggled at $1.4630, not far from a two-month low of $1.4587 struck on Friday. It has fallen more than 3 percent since hitting a 16-month high above $1.51 in November.
The dollar rallied on Friday while Wall Street stocks mostly rose after U.S. retail sales posted the largest advance since August last month, while consumer sentiment improved sharply in December.
The Fed is likely to keep rates unchanged near zero after a two-day meet starting on Tuesday. Investors are focused on the accompanying statement to see if the Fed reiterates a dovish bias despite the recent run of strong data.
Many analysts expect the dollar to trade lower on views the Fed will lag other central banks in tightening policy given tame price pressures, suggesting the dollar will remain a funding currency for carry trades.
We do not expect this dollar strength to last, said Callum Henderson, chief global currency strategist at Standard Chartered Bank.
Those riskier assets will need a currency to fund them and that currency is the U.S. dollar as such, we expect dollar gains to reverse once the market reassesses the fundamental impact of this data, he said.
Meanwhile, U.S. crude futures falling as much as $1 to below $69 a barrel, extending declines into a ninth day, hurt by worries over high oil inventories and a stronger dollar.
NYMEX crude for January delivery was down 68 cents at $69.19 barrel by 9:28 p.m. EST. On Friday, it settled down 67 cents, marking an eighth straight session of losses.
Gold prices edged up to 1,120 per ounce but still hovered near four-week lows hit the previous session as the dollar remained firm against a basket of major currencies.
(Editing by Kazunori Takada)