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Asian stocks inched lower on Friday as traders pondered the near term U.S. monetary policy path after Federal Reserve officials suggested that interest rates may need to stay higher for longer even as inflation shows early signs of easing.

Data on Wednesday showed cooling U.S. consumer price inflation, prompting markets to swiftly price in at least two rate cuts this year but the excitement soon fizzled out as the latest report showed the labour market remains tight, while central bankers were still cautious about inflation.

Traders are pricing in 47 basis points of easing this year from the Fed, with a rate cut in November fully priced in.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.14% after touching a two-year high on Thursday. The index was still set for an increase of 2.6% this week for its fourth straight week of gains.

Japan's Nikkei fell 0.48%, while China stocks grinded higher, with the blue chip gauge gaining 0.15% in early trading.

Hong Kong's Hang Seng Index was the bright spot for Asia, rising 0.77% and touching its highest since August 2023.

"Following the incremental softening of the U.S. data, this is probably as far as the risk rally can go in the absence of tier-1 data over the coming week," said Nicholas Chia, Asia macro strategist at Standard Chartered.

While the data this week offered the Fed good news on two fronts, policymakers haven't openly shifted views yet about the timing of rate cuts investors are convinced will start this year.

Monetary policy is "restrictive" and "is in a good place," Federal Reserve Bank of New York President John Williams said. "I don't see any indicators now telling me ... there's a reason to change the stance of monetary policy now."

Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, indicating that labour market conditions remain fairly tight even as job growth is cooling.

Overnight, the Dow rose as high as 40,051.05 while the S&P 500 and Nasdaq also hit record highs before gradually losing steam and finishing slightly lower on the day. [.N]

In the currency markets, the dollar headed for its largest weekly fall versus the euro in 2/1-2 months. The euro is up roughly 1% against the dollar and was last at $1.08595. [FRX/]

The yen weakened 0.23% to 155.80 per dollar in early trading, giving back some of the gains it made after the mild U.S. CPI report earlier in the week.

The Japanese currency has fallen around 9.5% this year as the Bank of Japan has kept monetary policy loose while higher U.S. interest rates have drawn money towards U.S. bonds and the dollar.

Tokyo is suspected to have intervened on at least two days in late April and early May to support the yen after it tumbled to lows last seen more than three decades ago.

The yen has been particularly sensitive to any widening of the interest rate differential.

"While the weaker U.S. data should benefit low-yielders like the yen, the recent price action suggests the Japanese authorities may have more to do beyond verbal jawboning if they intend to keep speculators at bay," Standard Chartered's Chia said.

"Paring back bond purchases and further rate hikes in the second half of 2024 may be inevitable if the authorities are serious about pushing the dollar-yen pair lower."

The BOJ on Friday kept the amounts unchanged at a regular bond buying operation, after unexpectedly reducing purchases of bonds with 5-10 years left to maturity at the start of the week.

In commodities, oil prices rose in Asian trading hours, with global benchmark Brent set for its first weekly increase in three weeks on signs of improving global demand and slowing inflation in top oil consumer the United States. [O/R]

U.S. crude was little changed at $79.18 a barrel and Brent was 0.1% higher at 83.35 per barrel.

Gold prices were last at $2,377.25 per ounche. [GOL/]