By Ambar Warrick

Investing.com -- Most Asian stocks rose slightly on Thursday amid some optimism over a Chinese economic recovery this year, while Japan’s Nikkei sharply reversed recent gains as traders bet on more hawkish moves from the Bank of Japan.

Still, gains in regional stocks were limited by growing fears of a recession in 2023, especially after U.S. data released overnight painted a dour picture of the world’s largest economy.

The Nikkei 225 index fell 1.5%, sharply reversing gains made during the prior session on renewed speculation that the BOJ will eventually widen its yield control range this year. The index rallied 2.5% on Wednesday after the central bank unexpectedly maintained its current course on monetary policy.

Columbia University academic Takatoshi Ito, who is considered to be a candidate to join the BOJ, said on Thursday that hotter-than-expected inflation could eventually push the central bank into widening its benchmark bond yield range by mid-2023.

Japanese consumer inflation data is due on Friday, and is expected to hit a 41-year high of 4% - twice the BOJ’s annual target.

Broader Asian stocks took some support from optimism over a Chinese economic recovery. China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.3% and 0.2%, respectively, after International Monetary Fund Deputy Director Gita Gopinath told Reuters that China could see a strong economic recovery by as soon as the second quarter.

Other China-exposed stocks also took some support from the statement. South Korea’s KOSPI index added 0.3%, while Australia’s ASX 200 index jumped 0.6%.

Shares of major Australian miners BHP Group Ltd (ASX:BHP) and Rio Tinto Ltd (ASX:RIO) rose sharply after both firms logged stronger iron ore production in the December quarter. BHP, the world’s largest miner, also said that a recovery in Chinese demand will help stabilize commodity markets.

But fears of a looming recession held back bigger gains in regional stocks, as did a weak lead-in from Wall Street.

U.S. stock indexes plummeted overnight after data showed retail sales and industrial production fell more than expected in December, heightening fears that the world’s largest economy will slow down in the coming months.

Markets also took mixed cues from a slew of overnight comments from Federal Reserve officials. While most officials supported raising interest rates at a slower pace in the coming months, they were divided over where U.S. interest rates would peak.

This uncertainty dented Asian technology stocks, which are more sensitive to changes in U.S. rates.