Asian shares hit three-week high ahead of crunch Fed meeting

Asian stocks hit a three-week high on Thursday after a jump in oil prices lifted Wall Street, with many investors taking last-minute positions ahead of a crucial US Federal Reserve policy announcement.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4%, hitting its highest level in three weeks while Japan's Nikkei average rose 1.4%.

Oil prices jumped on Wednesday, after the largest US crude drawdown in seven months as the key US delivery point eased worries about over supply, helping to boost battered energy stocks.

That in turn supported Wall Street shares, with S&P 500 index rising 0.9% to 1,995.31, its highest close in almost a month, having pared just about a half of its fall from July to late August.

US inflation data, unveiled a day before the Fed's long-awaited policy decision later in the day, showed consumer prices unexpectedly fell in August.

Precious metal prices jumped as some market players took low the inflation reading to mean a smaller chance of an immediate rate hike.

Gold prices rose to 1.3% on Wednesday to $1,119.50 per ounce. Silver jumped 3.9% to $14.96 per ounce, its highest level in more than three weeks.

The dollar also lost its edge in the currency market after the data, with the currency's index against a basket of six major currencies slipping to 95.323 from this week's high of 95.845.

"We believe that the Fed will refrain from raising rates today. But at the same time, it will indicate that it is highly likely to raise rates by the end of the year," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

But there is little clarity on what the Federal Reserve will do on the whole.

US money market futures hardly moved, still pricing in about one-in-four chance of a rate hike on Thursday.

On the other hand, the US two-year note yield hit a 4 1/2-year high of 0.819% as investors expect the Fed will start its tightening cycle soon as the economy recovers, even if it does not do so this month.

The rise in Treasuries yields, also likely reflected selling by China, which needs to cash out dollars for its intervention to support the yuan, market players said.

The data published late on Wednesday showed China's holding of US Treasuries dropped to $1.241 trillion in July from $1.271 in June.