Asia stocks up, dollar sags as Fed tempers rate tightening views

By Shinichi Saoshiro and Lisa Twaronite

TOKYO (Reuters) - Asian equities firmed on Thursday and the dollar was on the defensive after the Federal Reserve indicated that interest rates would rise more slowly than markets had expected.

After a closely-watched two-day meeting, the Fed said the economy was likely strong enough to support an interest rate increase by the end of the year. But it lowered its forecasts for 2015 economic growth because of a weak start to the year and reduced its federal funds rate forecast.

MSCI's broadest index of Asia-Pacific shares outside Japan climbed about 0.2 percent, while Japan's Nikkei skidded 0.8 percent to a one-week low as the yen gained against the dollar.

"The market is rather concerned about the U.S. economic view in the future," said Masaru Hamasaki, head of the market and investment information department at Amundi Japan.

South Korean shares were poised to post their sharpest daily gain in four weeks, with the Korea Composite Stock Price Index rising 0.7 percent.

On Wednesday, Wall Street shares inched higher in a choppy session following the Fed's statements, with the Dow rising 0.17 percent and S&P gaining 0.2 percent.

The Fed's stance had tripped up some investors who had expected the central bank to signal a rate hike as early as September.

U.S. Treasury yields, which had reached eight-month highs last week, fell back and decreased the dollar's appeal, pressuring it against many of its peers. The benchmark 10-year note yield fell to 2.32 percent from 2.39 percent before the Fed statement was released, and was at 2.27 percent in Asian trading.

The dollar index, which tracks the greenback against a basket of six rival currencies, was down about 0.2 percent at 94.091 after losing 0.8 percent in the previous session.

The dollar skidded about 0.3 percent on the day to 123.10 yen, down from its overnight high of 124.465 yen, while the euro rose about 0.2 percent to $1.1362, adding to the previous day's 0.8 percent rise.

"Expectations were high going into the monetary policy announcement and unfortunately for dollar bulls hoping for a sharp upside breakout, (Fed Chair) Janet Yellen failed to deliver," Kathy Lien, managing director of FX Strategy for BK Asset Management, wrote.

"Investors were hoping for a clear road map for lift off but she did not even mention that the chance of a September rate hike has strengthened."

It was a different story for sterling, which soared overnight after robust British wage growth data supported the case for a rate hike by the Bank of England.

The pound touched a new seven-month high of $1.5852 in Asia, and was last up about 0.1 percent on the day at $1.5842.

In commodities trading, crude oil futures slipped after U.S. government data showed that gasoline stocks and distillate inventories rose last week, although falls were checked by the weaker dollar and continuing fears of unrest in the Middle East.

Brent crude dipped 0.3 percent to $63.67 a barrel, while U.S. crude also fell about 0.5 percent to $59.61.

Spot gold, another beneficiary of the greenback's weakening following the Fed meeting, was up about 0.1 percent at $1,186.76 an ounce.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam)