Asia stocks hesitant, dollar knocked after poor U.S. data

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks stuttered in early trade on Wednesday after downbeat U.S. manufacturing data raised concerns about the health of the world's biggest economy, while the dollar retreated from 8-1/2-month highs.

Japan's Nikkei <.N225> dipped 0.2 percent, Australian stocks <.AXJO> lost 0.5 percent and South Korea's Kospi shed 0.3 percent. MSCI's broadest index of Asia-Pacific shares outside Japan stood flat.

The Dow and S&P 500 both gained about 1 percent on Tuesday thanks to a rebound in health and consumer shares.

Data released Tuesday showed the U.S. manufacturing sector contracted last month to its weakest level since June 2009, while construction spending rose in October to the highest level since December 2007. The mixed data prompted markets to question whether the U.S. economy was ready for an interest rate hike that could come as early as this month.

The dollar index, a gauge of the greenback's strength against a basket of key currencies, pulled back from the 8-1/2-month peak of 100.310 <.DOXY> scaled on Monday, and last stood at 99.826 in the wake of the disappointing manufacturing figures.

The dollar was also pressured by comments from Chicago Fed President Charles Evans, who emphasized the need for the U.S. central bank to spell out a gradual pace of rate hikes.

"Manufacturing sector weakness is tied directly to the strong dollar but the sharp slide in U.S. rates signals that investors are either questioning the Federal Reserve's resolve or looking past next week's rate hike," wrote Kathy Lien, managing director of FX strategy for BKX Asset Management.

The benchmark U.S. 10-year Treasury note yield declined to a 1-month low of 2.145 percent overnight as safe-haven government debt attracted bids.

"Either way, we'll only be long dollars right up to the FOMC rate decision and not beyond it," Lien added.

The dollar's retreat provide some respite to the euro, which has been battered recently by prospects of the European Central Bank rolling out more stimulus at its policy meeting on Thursday. The common currency traded above $.10600 , pulling back from a 7-1/2-month low of $1.0557.

Against the yen, the greenback stepped back to 122.87 yen from Monday's high of 123.34.

The Australian and New Zealand dollars rallied more than 1 percent against the U.S. currency.

The Aussie was further aided after the Australian central bank skipped a chance on Tuesday to cut interest rates or talk down the currency afresh, enabling it to climb above 73 U.S. cents for the first time in over a month.

In commodities, crude oil prices sagged on expectations that OPEC will not cut output to stem a supply glut when they meet later this week.

U.S. crude was down 0.3 percent at $41.72 a barrel.

(Editing by Shri Navaratnam)