HONG KONG - Asian shares dropped on Wednesday, reversing early gains, as analysts said sky-high oil prices meant stocks were quick to react to any hint of bad news such as a rate hike by New Zealand's central bank.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6%, while Japan's Nikkei lost 1.66%, having risen more than 1% in early trade.

There were falls in Hong Kong off 0.77%, Korea down 0.98% and Australia 0.8% lower, and U.S. stock futures, the S&P 500 e-minis shed 0.45%.

Oil steadied at multi-year highs having been pushed there by concerns about energy supply, and a decision on Monday by the OPEC+ group of producers to stick to a planned output increase rather than raising it further.

U.S. crude rose to its highest level since 2014 but pared gains and was last off 0.15% to $78.81 a barrel. Brent crude lost 0.07% to $82.46 per barrel, having hit a three-year high in the previous session.

"OPEC’s outlook suggests further reductions in global oil stockpiles. That’s a problem given that oil inventories are already low," wrote analysts at CBA in a note.

These worries have also weighed on equity markets, concerned that higher energy prices could force central banks to raise rates more quickly to react to rising inflation.

"Oil needs to come off a bit," said Dave Wang, a portfolio manager at Nuvest Capital in Singapore. "A further spike in oil will force everyone to reassess inflation assumptions."

New Zealand's central bank on Wednesday raised interest rates by 25 basis points. Although widely expected, the move still pushed the New Zealand dollar about 0.1% higher, before falling 0.45%, and also seemed to affect wider equity markets.

The decision reinforced concerns that “inflation may trigger more rate hikes from different central banks in the future, as stagflation is one of the biggest worries in the market,” said Edison Pun, senior market analyst at Saxo Markets.

Chinese markets remained closed for a public holiday, and shares of cash-strapped Chinese developer China Evergrande were suspended having stopped trading on Monday pending an announcement of a significant transaction.

Uncertainty about Evergrande's fate roiled Chinese property developers' bonds and Hong Kong-listed shares and bonds on Tuesday following fresh credit rating downgrades.

Overnight the Dow Jones Industrial Average rose 0.92%, the S&P 500 gained 1.05% and the Nasdaq Composite climbed 1.25%, despite worries that the United States will default on its debt.

The Senate will vote on Wednesday on a Democratic-backed measure to suspend the U.S. debt ceiling, a key lawmaker said on Tuesday, as partisan brinkmanship in Congress risks an economically crippling federal credit default.

These fears, however, did help push the dollar back towards its 12-month highs and benchmark treasury yields to near their highest level since mid June.

In Asian trading, the dollar hovered close to its highs for the year against a basket of its peers, while the euro stayed near its 14-month low struck last week.

The yield on benchmark 10-year Treasury notes rose to 1.5466%, nearing a four-month high of 1.5670% hit in late September.

Spot gold shed 0.28% to $1755 an ounce, with the non-interest bearing asset hurt by higher yields.

(Additional reporting by Tom Westbrook in Singapore; Editing by Stephen Coates)

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