Stock markets mostly retreated Tuesday, though analysts said there was still confidence on trading floors that the Federal Reserve is finished hiking interest rates.
Expectations that financial conditions will become easier in the new year as inflation comes down have fanned a rush back into risk assets in recent weeks and pushed the dollar down against its peers.
All three main indexes in New York extended their gains Monday, with the Nasdaq hitting a 22-month high thanks to an advance in tech giants including Amazon, Microsoft and Nvidia.
The rally was boosted by the successful sale of 20-year US Treasuries that sent yields on other notes lower. Talk is now growing that the Fed could cut borrowing costs as early as March, much earlier than previous bets on the second half of 2024.
"Some professional investors have turned broadly bullish on bonds amid softer US macro data and speculation that the Fed's not only done raising rates but perhaps poised to implement so-called 'insurance cuts' beginning as soon as March," said SPI Asset Management's Stephen Innes.
Asian markets started the day on the front foot but ran out of gas as the day progressed.
Hong Kong dipped even after market heavyweight Alibaba jumped more than two percent to extend its rebound after diving 10 percent Friday on news it had cancelled the spinoff of its cloud computing arm.
Tokyo, Singapore, Jakarta and Wellington also fell, while Shanghai was flat. Sydney, Seoul, Mumbai, Taipei, Bangkok and Manila were all up.
London and Paris both retreated at the open while Frankfurt edged upward.
The yen rose, extending a rebound since coming within a whisker of the 32-year low of 151.95 to the dollar in October. The pick-up has come as US rate expectations ease and speculation swirls that the Bank of Japan is thinking of shifting from its ultra-loose policies.
The greenback was also down against the euro and pound.
Still, while traders are getting comfortable with the idea of a rate cut in the new year, Fed officials remain cautious.
In the latest remarks, Richmond Fed president Thomas Barkin warned the bank still had plenty of work to do to slay inflation, which at 3.2 percent is still well above target.
"The economy is still growing -- unemployment is still 3.9% and... inflation does seem to be settling. So all that's good," he told Fox Business.
"But the job's not done, and so you have to keep on until you get the job done, and we'll see where we land."
He added that with "inflation being stubborn", he favoured keeping rates elevated for an extended period, but how long would depend on the incoming data.
Traders are now awaiting the release of minutes from the Fed's November policy meeting, when they held rates, while comments from officials will also be pored over ahead of their last gathering of the year on December 12-13.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: DOWN 0.1 percent at 33,354.14 (close)
Hong Kong - Hang Seng Index: DOWN 0.3 percent at 17,733.89 (close)
Shanghai - Composite: FLAT at 3,067.93 (close)
London - FTSE 100: DOWN 0.2 percent at 7,483.62
Dollar/yen: DOWN at 147.39 yen from 148.31 yen on Monday
Pound/dollar: UP at $1.2529 from $1.2502
Euro/dollar: UP at $1.0955 from $1.0945
Euro/pound: DOWN at 87.44 pence from 87.48 pence
West Texas Intermediate: DOWN 0.7 percent at $77.29 per barrel
Brent North Sea crude: DOWN 0.7 percent at $81.77 per barrel
New York - Dow: UP 0.6 percent at 35,151.04 (close)