Asia stocks edge up, dollar sags after Fed meeting

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks edged up early on Thursday after the Federal Reserve provided an positive assessment of the world's largest economy and lifted risk sentiment.

The dollar sagged against its peers as some in the currency market had hoped the Fed would give a clearer indication that it could raise rates within the year.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3 percent, climbing to its highest level since August 2015.

Australian stocks <.AXJO> added 0.2 percent and South Korea's Kospi rose 0.1 percent. Japan's Nikkei <.N225> fell 0.6 percent, hurt by a stronger yen.

Asia was unable to take a strong lead from Wall Street, where shares ended little changed overnight following the Fed's policy decision to leave interest rates unchanged,

It did say, however, that near-term risks to the U.S. economic outlook had diminished, opening the door for a potential near-term hike in the eyes of many.

But it also noted that inflation expectations were on balance little changed in recent months, and gave no firm indication of whether it would raise rates at its next policy meeting in September.

"While a number of investment banks have increased their internal probability models for a September hike, the interest rate markets have gone the other way and priced out the prospect. The reverberations of this re-pricing can be seen in weakness in the USD and a bold rally in gold," wrote Chris Weston, chief market strategist at IG in Melbourne.

The Fed's latest policy statement spurred traders to favour longer-dated U.S. Treasuries over shorter-dated issues, pushing the yields on 10-year notes and 30-year bonds to 1-1/2-week lows as prices rose. [US/]

Spot gold hovered near a two-week high of $1,342.18 an ounce touched overnight when it gained 1.4 percent.

The dollar index slipped to a nine-day low of 96.606, pulling back sharply from a 4-1/2-month high of 97.569 scaled early in the week.

The euro, which gained 0.7 percent overnight, edged up to a nine-day high of $1.1074 .

The dollar was down 0.3 percent at 105.05 yen , with caution over potential monetary easing by the Bank of Japan limiting the greenback's losses. The BOJ concludes a two-day policy meeting on Friday.

Against the broadly weaker U.S. currency, the Australian dollar was up 0.3 percent at $0.7518 and sterling nudged up 0.1 percent to $1.3239 .

U.S. crude rose 0.3 percent to $42.04 a barrel on bargain hunting after sliding to a three-month low of $41.68 on Wednesday after news U.S. crude and gasoline stocks had surged, reflecting weak demand during the peak summer driving season. [O/R]

(Reporting by Shinichi Saoshiro; Editing by Eric Meijer)