Asia stocks were mostly down Thursday, with energy and commodity shares taking a beating as investors digested news that an imminent Federal Reserve interest rate hike could be on the cards.
The declines followed a weak lead from Wall Street after minutes from the Federal Reserve's April policy meeting suggested an interest rate hike in June was a much more serious possibility than the market believed.
Market expectations of a June rate increase based on CME rate derivatives, jumped from less than 5 percent last week to about 34 percent, and with a majority expecting an increase by July.
Hong Kong was down 0.3 percent, Seoul dropped 0.5 percent, Sydney fell 0.7 percent but Shanghai was up 0.5 percent.
"There is this enormous policy uncertainty," Randal Jenneke, Sydney-based fund manager at T. Rowe Price Group Inc. told Bloomberg News.
"The Fed has changed the goal posts so many times, everyone is confused. No one knows when they’re going to raise rates and no one knows what’s going to be the key thing to trigger the decision."
Tokyo also fell by the break, with the Nikkei down 0.05 percent.
Shares had opened firmly higher, with exporters lifted after the dollar surged against the yen, rising above the 110-level for the first time since the Bank of Japan on April 28 surprised markets by holding off fresh stimulus.
A strong yen is bad for Japan's exporting giants, such as Toyota and Sony, because it makes their goods more expensive overseas and shrinks the value of repatriated profits.
But the US unit retreated below the 110-level by the midday break on Thursday, changing hands at 109.99 yen.
- Energy firms hit -
News that a US interest rate hike was increasingly likely pummelled energy and commodity shares, as oil prices plunged into negative territory after hitting a fresh multi-month high earlier Wednesday.
US benchmark West Texas Intermediate was down 1.37 percent to $47.53 and Brent crude fell 1.59 percent to $48.15.
A surge in the dollar puts downward pressure on oil, which is traded in the US currency.
Sydney-listed mining giant BHP Billiton was off 4.7 percent, Rio Tinto retreated 3.3 percent and Woodside Petroleum dropped 1.4 percent.
In Hong Kong, China's CNOOC lost 1.3 percent and PetroChina slid 0.9percent. Tokyo-listed Inpex sunk 5.5 percent.
Taiwan also tumbled, with materials firms among the worst hit. Formosa Chemicals & Fibre plunged 4.1 percent and China Steel dived 2.3 percent.
"The sharp rally in the US dollar may make for a difficult day in the materials and energy space," Angus Nicholson, a market analyst at IG in Melbourne, said in a commentary.
The dollar was broadly up against emerging market currencies.
The oil-reliant Malaysian ringgit slipped 0.72 percent, and the South Korean won fell against the greenback 0.69 percent.
- Key figures around 0315 GMT -
DOWN 0.1 percent at 16,644.69 (close)
Tokyo: Nikkei 225: DOWN 0.05 percent at 16,636.67
Shanghai - Composite: UP 0.5 percent at 2,822.497
Hong Kong - Hang Seng: DOWN 0.3 percent at 19,760.49
Euro/dollar: UP at 1.1222 from $1.1218 on Wednesday
Dollar/yen: DOWN at 109.99 yen from 110.20 yen
New York - Dow: DOWN less than 0.1 percent at 17,526.62 (close)
London - FTSE 100: DOWN less than 0.1 percent at 6,165.80 (close)