By Dominic Lau
TOKYO (Reuters) - Asian shares wavered on Thursday after a lacklustre performance on Wall Street overnight and ahead of a key U.S. jobs report due out the following day, while the dollar hovered near a seven-week high against a basket of currencies.
Market reaction was muted to a slowdown in China's annual consumer inflation in December, which decelerated to 2.5 percent from the previous month's 3 percent, more than the market had expected.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.4 percent after snapping a five-day losing streak on Wednesday.
Despite the yen's weakness, Japan's Nikkei benchmark shed 1.5 percent, giving up some of its 1.9 percent bounce in the previous session after losing nearly 3 percent in the first two trading days of 2014.
Financial bookmakers expected UK, German and French shares to open steady on Thursday, ahead of the European Central Bank's policy meeting. Analysts doubt it will do more than flag its readiness to act when needed, despite another surprising fall in euro zone inflation.
Overnight, the U.S. Standard & Poor's 500 finished nearly flat, while the Dow Jones industrial average slipped 0.4 percent.
The dollar was little changed at 81.031 against a basket of major currencies, not far from a seven-week high of 81.166 set on Wednesday after payrolls processor ADP said U.S. private employers added a bigger-than-expected 238,000 jobs in December, the strongest increase in 13 months.
The upbeat data, two days before the nonfarm payroll report, also drove U.S. short-term yields and market rates higher. According to CME FedWatch, short-term U.S. interest rates futures implied traders now assign a 60 percent probability for the first Fed rate hike as early as April 2015.
Friday's U.S. jobs report will further indicate how the world's largest economy is faring - and therefore how fast the Federal Reserve will scale back stimulus. Economists polled by Reuters have forecast 196,000 jobs were added to the U.S. economy in December.
"If it exceeds the forecast sharply, say, way higher than 200,000 jobs, we need to watch out for a possible rise in U.S. long-term interest rates," said Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo.
Yet, minutes from Fed's December 17-18 meeting showed Fed policymakers were keen to steer a cautious path and to make it clear that future decisions were not set in stone, as they began reducing its monthly bond purchases to $75 billion from $85 billion this month.
The Fed's massive stimulus has been a major driver for risk assets over the past few years, and concerns have been raised that the tapering would cause massive outflow of capital from emerging markets, leading to instability there.
"While the committee was clearly attentive to the impact of taper on financial conditions, there was also concern expressed about compressed risk premiums if quantitative easing were to continue for too long," analysts at BNP Paribas wrote in a note.
"Our economists think the FOMC is on track to continue tapering in measured steps on course for ending asset purchases by the end of this year," they said. "Against this backdrop, we remain constructive on the USD."
The dollar was a touch firmer at 104.925 yen, having risen to a one-week high of 105.135 in the previous session. Against the euro, it was down at $1.35915, having gained 0.3 percent on Wednesday.
Among commodities, gold was a tad higher at $1,227.05 per ounce, steadying after losing two days in a row and touching a one-week low on Wednesday.
U.S. crude futures advanced 0.3 percent to $92.62 a barrel, rebounding from a five-week low hit overnight after data showed a large build in stockpiles at the U.S. benchmark delivery point. Brent crude also gained 0.3 percent, to $107.52 per barrel.