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By Kevin Buckland
TOKYO, July 14 (Reuters) - Asian stocks rose on Friday, on course for their best week this year, as a cooling in U.S. inflation stoked speculation that the Federal Reserve could pause rate hikes after this month.
The dollar sank to a fresh 15-month low against major peers and U.S. Treasury yields languished near multi-week lows following the sharpest weekly drop in four months.
Gold was poised for its best week in three months as the dollar floundered, while crude oil rose to the highest in nearly three months.
While money market traders still see a quarter point bump to the Fed funds rate on July 26 as close to a sure thing, they have reduced the chances of another this year to just 1-in-5.
Data on Thursday showed the smallest increase in U.S. factory gate inflation in nearly three years, reinforcing the milder inflation outlook after a report the previous day showing consumer price gains mitigated to the slowest pace in more than two years.
"What it means is we've got the Fed with its chest pretty much crossing the finish line at the end of the most aggressive tightening cycle in four decades, so it does warrant the rapid repricing that we've seen in many of these asset classes," said Tony Sycamore, a market analyst at IG in Sydney.
"The equity market absolutely took off, and the dollar is under intense pressure."
MSCI's broadest index of Asia-Pacific shares outside Japan rallied 0.7% on Friday to put it on track for a 5.4% weekly advance, the biggest for eight months.
Hong Kong's Hang Seng gained 0.52% and mainland Chinese blue chips added 0.12%. South Korea's Kospi jumped 1%.
Japan's Nikkei, though, was a notable outlier, flipping early gains to be last down 0.43% as it struggles to find its feet following its retreat from a 33-year peak reached at the start of this month.
U.S. E-mini equity futures also pointed to a 0.16% lower restart for the S&P 500, after the index rallied 0.85% overnight.
Meanwhile, the U.S. dollar index - which measures the currency against six major peers - edged about 0.1% lower to touch 99.637 for the first time since April of last year.
"The dollar index can probably trade down toward 98 over the coming weeks without too many problems," said IG's Sycamore. "I wouldn't be fighting that trend."
U.S. two-year Treasury yields, which tend to be most sensitive to the Fed policy outlook, languished at 4.63%, following a 30 basis point slide this week that extended its drop from last week's 16-year peak above 5%.