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Asian equities rose sharply on Wednesday, tracking a relief rally on Wall Street and as U.S. inflation data delivered no nasty surprises, reinforcing hopes the Federal Reserve will likely go for a smaller rate hike when it meets next week.

Investors piled back into stocks in U.S. markets overnight as fears about contagion in the banking sector following the collapse of Silicon Valley Bank (SVB) last week eased.

MSCI's broadest index of Asia-Pacific shares outside Japan was 1.44% higher, having slid 1.7% on Tuesday after SVB's collapse triggered heavy selling by investors in the last few trading sessions.

Australia's S&P/ASX 200 index rose 0.33% in early trading, while Japan's Nikkei was mostly flat.

Chinese shares were 0.46% higher, while Hong Kong's Hang Seng index rose 1.4%.

Data on Wednesday showed China's industrial output in the first two months of 2023 rose 2.4% from the year earlier, accelerating from a 1.3% annual rise seen in December. The data slightly missed forecasts for a 2.6% rise in a Reuters poll of analysts.

"It's clearly dominated by a relief rally rather than any inflation angst," said Robert Carnell, regional head of research, Asia Pacific at ING.

"I suppose what we've got is the banking sector in the U.S. returning to stability, with depositors being given the fairly clear signal that they're not going to lose out."

Investors were also relieved after February's U.S. inflation report on Tuesday showed consumer prices rising by 0.4%, with a year-on-year gain of 6% - in line with analyst expectations, as there were worries that stronger than expected data might lead the Fed to go for jumbo-sized hikes to battle inflation.

As recently as last week, markets were braced for the return of large Fed hikes but the swift collapse of SVB has changed those expectations, with market pricing in an 80% chance of a 25 basis point hike next week.

"It does feel like the 50 basis point move for this month's meeting that was speculated about especially after Powell's commentary to the Senate Banking Committee. Nobody's expecting that anymore," said Carnell.

U.S. Treasury yields extended gains into Asian hours after sharp declines at the start of the week. The yield on 10-year Treasury notes was up 3.8 basis points to 3.674%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 6.9 basis points at 4.294%, but far off last week's peak of 5.084%.

In the currency market, the greenback held steady, with the dollar index, which measures the U.S. currency against six rivals, at 103.64, with the euro unchanged at $1.0732.

The Japanese yen weakened 0.08% to 134.30 per dollar, while sterling was last trading at $1.2157, down 0.01% on the day.

U.S. crude rose 1.07% to $72.09 per barrel and Brent was at $78.16, up 0.92% on the day.

Gold prices were on edge, with spot gold adding 0.1% to $1,904.11 an ounce.