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 Asian shares crept higher on Tuesday while the dollar eased as investors stayed cautious ahead of a crucial U.S. inflation report later in the day that will set the tone for the week filled with central bank meetings.

The U.S. Federal Reserve is widely expected to hold rates on Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his press conference as well as the central bank's dot plot and summary economic projections.

Before that, the U.S. Labor Department's Consumer Price Index (CPI) report later on Tuesday is expected to show inflation still cooling but staying well above the Fed's 2% annual target, with core CPI expected to come in at 4%.

That has meant investors are hesitant in placing major bets, with MSCI's broadest index of Asia-Pacific shares outside Japan 0.38% higher. Japan's Nikkei rose 0.72%.

"Should core CPI come in at or above 4.2% year-over-year, equity traders will likely rush to hit the sell button first and ask questions later," said IG market analyst Tony Sycamore.

"Should core CPI print at 3.9% or less, it would be the green light for equity markets to extend gains into year-end." 

Overnight, U.S. stocks registered modest gains but managed to close at new highs for the year. [.N]

In China, blue-chip stocks eased 0.28%, while Hong Kong's Hang Seng index fell 0.20% as investors looked for signs of policy support after data showed China's November consumer prices posted their fastest fall in three years.

In a busy week for central bankers, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all also meet on Thursday.

Investors have steadily dialled back some of the expectations of the Fed cutting rates early next year. Markets are now pricing in a 45% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Markets though have priced in 75% chance of a rate cut in May.

"While any fireworks (from the Fed meeting) are ruled out, the market will likely be hoping for a message that at least helps keep the current rally intact," said Gary Dugan, CIO of Dalma Capital.

"We struggle to see how the Fed could endorse such a move higher in bonds and equities when the medium-term strength of economic data is unclear."

The yield on 10-year Treasury notes eased 0.6 basis points to 4.233% in Asian hours after lacklustre three- and 10-year note auctions on Monday. [US/]

Investors were reluctant to buy Treasuries in the auctions given thinner liquidity with the U.S. consumer price data and the Fed policy meeting on the horizon this week.

The Treasury Department will sell $21 billion in 30-year reopened bonds on Tuesday, following Monday's auction of $50 billion in reopened three-year notes and $37 billion in 10-year notes.

In currency market, the Japanese yen remained in the spotlight as expectations that the Bank of Japan was ready to walk away from its ultra loose monetary policy faded after Bloomberg reported on Monday, citing sources, that BOJ officials see little need to rush out of negative rates.

Tom Kenny, senior international economist at ANZ, said a hike now seems premature with a backdrop of weak consumer spending but recent trends in inflation and wages suggest the BOJ is edging closer to achieving its 2% inflation target.

"We anticipate the BOJ will start its journey of rate normalising by April 2024 ... other aspects of policy stance will remain open for adjustment, such as more tweaks to YCC or its complete end and removing its forward guidance that rates could go lower."

The Japanese yen strengthened 0.41% to 145.58 per dollar in early Asian trade after sliding nearly 0.8% on Monday. The BOJ is due to meet next week. [FRX/]

The dollar index, which measures the U.S. currency against six rivals including yen, eased 0.067% to 103.99.

Gold prices edged higher after touching a three-week low in the previous session ahead of the inflation report and Fed policy decision. Spot gold added 0.2% to $1,984.29 an ounce. [GOL/]

U.S. crude rose 0.14% to $71.42 per barrel and Brent was at $76.09, up 0.08% on the day. [O/R]