Asian stock markets fell on Thursday in the face of higher oil prices as fighting in Libya intensified, fuelling worries that mounting inflationary pressure could bite into global growth.
The euro zone's sovereign debt problem is also a risk to global growth. Portugal on Wednesday saw its cost for issuing two-year debt soar to its highest level since it joined the euro in 1999, rekindling fears it will need a bailout.
That kept the euro from making much headway against the dollar. The common currency last traded at $1.3913, still off highs just above $1.40 set on Monday.
In an effort to keep a lid on prices, the Bank of Korea raised interest rates for a fourth time in less than a year on Thursday. New Zealand, on the other hand, cut rates in order to bolster confidence after last month's devastating earthquake.
U.S. crude rose toward $105 a barrel, not far from a peak near $107 hit earlier this week, after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting what could be longer-term damage on the country's exporting capacity.
Brent crude gained 0.5 percent to $116.50.
Investors are still concerned about developments in the Middle East, so oil prices during the day may decide the market's direction, said Masumi Yamamoto, a market analyst at Daiwa Securities Capital Markets.
That concern saw Japan's Nikkei average <.N225> fall 1.1 percent, while stocks elsewhere in Asia <.MIAPJ0000PUS> shed 1.0 percent.
South Korea's KOSPI <.KS11> slid 1.1 percent, Hong Kong's Hang Seng index <.HSI> fell 0.5 percent, while China's Shanghai Composite Index <.SSEC> lost 0.8 percent.
Technology stocks came under pressure after sector heavyweight Texas Instruments
Revised data on Thursday showed Japan's economy, the world's third largest, shrank at a slightly faster annualized pace in the fourth quarter than initially reported.
But analyst expect improving exports to help the Japanese economy return to growth this year, although they warned that high oil prices threatened that outlook.
Traders said last week's hawkish comments by European Central Bank President Jean-Claude Trichet about a possible rate hike as early as next month were already discounted by markets.
The market has already priced in a rise in euro zone rates to near 2 percent by the end of the year. But there are worries about whether the economy can cope with such high rates, said Makoto Noji, a senior strategist at Nikko Cordial Securities.
It's also hard to think investors will try to price in even more aggressive rate hikes from now, which suggests the euro may be capped in the near term, he said.
(Additional reporting by Gertrude Chavez-Dreyfuss, Ayai Tomisawa and Hideyuki Sano in Tokyo; Editing by Nick Macfie)