TOKYO (Reuters) - Asian shares and the dollar were pressured on Thursday, undermined by an overnight pullback in global equities as investors assessed the implications of a potential softening of the Federal Reserve's massive monetary stimulus programme.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 percent, barely above Friday's five-week low of 464.99.
Sentiment was weighed as the CBOE Volatility index, which measures expected volatility in the Standard & Poor's 500 index over the next 30 days, hit a five-week high on Wednesday before closing up 2.4 percent.
The dollar also remained broadly pressured, as Wall Street retreated on fears that strength in the U.S. economy could lead the Fed to scale down its aggressive supportive measures, and as U.S. Treasury yields eased from multi-month highs on Wednesday.
"Speculation about the Fed may be affecting markets in Asia which have been rallying on funds flowing in as a result of the Fed's stimulus," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
"But such speculation about the Fed scaling down its stimulus has been surfacing since the start of the year, and investors may eventually shift their focus to the region's moderate growth which will likely improve corporate earnings prospects, after the current adjustment phase is over," he said.
Australian shares shed 1 percent to a six-week low as financials lost ground while weak metals prices hit miners. South Korean shares .KS11 were up 0.3 percent and Hong Kong shares .HSI added 0.1 percent, however.
The Nikkei stock average fell more than 3 percent to below 14,000, dragged lower by the dollar's decline to its lowest since May 10 against the yen which weighed on exporters.
"The rising yen is just a minor reason that triggered further selling. The fundamental concern that's been in investors' heads is the possibility that the Fed is exiting from quantitative easing," said a fund manager at a U.S. hedge fund.
The dollar fell to a session low of 100.585 yen early in Asia on Thursday before recovering to edge up 0.2 percent at 101.28 yen.
The dollar index .DXY measured against a basket of six key currencies inched down 0.12 percent to 83.561, moving away from its highest since July 2010 of 84.498 reached on May 23.
Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, pointed to a sense of uneasiness when both U.S. equities and Treasury yields jumped earlier this week, which suggested stocks were due for a correction, as views of a potential shift in Fed policy as the U.S. economy recovers justified a rise in yields more than in equities.
"The dollar is undergoing adjustments as other markets sort out this strange situation. But the U.S. economy is resilient, and if U.S. yields are rising as a result of positive growth outlook, then equities will eventually stabilise. In a broader scope, there is no change in a trend for dollar buying and selling of the yen and the Swiss francs," Maeba said.
The dollar may be capped around 101.50 yen during Asian business hours on Thursday, but a drop below 101 yen would offer good dip-buying opportunities, he said, adding that the dollar's limited drop of about three yen during last week's extreme volatility in Japanese government bond and stock markets underscored the U.S. currency's long-term bullish outlook.
Benchmark U.S. 10-year Treasury yields eased to 2.12 percent on Wednesday, having reached a 13-month high of 2.24 percent earlier this week.
Treasury yields have come under pressure after Fed Chairman Ben Bernanke said last week that the U.S. central bank may decide to taper its program of buying Treasuries and mortgage-backed securities in the next few Fed policy meetings if data shows economic growth is gaining traction.
Investors will keep a close eye on upcoming data including the week's jobless claims number and first-quarter gross domestic product due later in the session.
The Organisation for Economic Cooperation and Development on Wednesday cut its global growth forecasts, saying the recession-hit euro zone will fall further behind a generally improving United States and a rebounding Japan this year.
Japan's capital flows data on Thursday showed foreign investors remained net buyers of Japanese stocks for the week ending on May 25 while Japanese investors sold a net 1.117 trillion yen of foreign bonds in the same period.
Demand worries continued to weigh on commodities.
U.S. crude futures recovered earlier losses to inch up 0.1 percent to $93.19 a barrel while Brent was little changed at $102.42.
A weak dollar underpinned spot gold, which rose 0.3 percent to $1,396.71 an ounce. <GOL/>
Additional reporting by Ayai Tomisawa in Tokyo; Editing by Eric Meijer