Dollar gains on Fed outlook, hurts shares

Nikkei falls 0.4% while MSCI's index of Asia-Pacific shares outside Japan sheds 0.3%

The US dollar stood tall on Wednesday on growing expectations the Federal Reserve would raise interest rates earlier than expected, hitting shares and other assets that have benefitted from years of ultra-easy US monetary policy.

Share of Apple Inc turned lower as the initial excitement over its announcement of new products including a watch, larger iPhones and a mobile payment service, quickly evaporated.

That may hobble the region's tech stocks, especially those linked to Apple's supply chain, though rival's of the Cupertino, California-based company could get a boost.

Japan's Nikkei fell 0.4% while MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.3%.

On Wall Street, Apple's decline and higher bond yields pushed stocks down. The S&P 500 lost 0.7, the Dow fell 0.6% and the Nasdaq Composite dropped 0.9%.

The dollar soared after research from economists at the San Francisco Fed suggested that investors may be underestimating when the US central bank is likely to raise interest rates.

Predictably, the research ramped up expectations the Fed could signal an earlier-than-expected hike in rates at their policy-setting meeting on Sept. 16-17.

"The markets had probably become too complacent about the Fed keeping rates low for a long time because of the Ukraine crisis and so on," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar's index against a basket of major currencies rose as high as 84.519 on Tuesday, not far from the July 2013 peak of 84.753. A break there will take it to levels not seen since July 2010. It last stood at 84.136.

The euro fell to a 14-month low of $1.2860 on Tuesday before rebounding to trade at $1.2938. The greenback rose to a six-year high of 106.475 yen and last traded at 106.20 yen.

As the dollar rose, gold prices hit a three-month low of $1,247.15 per ounce on Tuesday and last stood at $1,255.19.

US bond yields also climbed as investors reassessed the Fed's rates outlook, with the 10-year yield hitting a five-week high of 2.509%. It was at 2.502% in early Asian trade on Wednesday.

The rate-sensitive two-year yield rose to 0.560%, near its three-year peak of 0.590%.