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By Tom Westbrook
SINGAPORE, Nov 22 (Reuters) - Asian stocks backed away from 2-1/2-month high on Wednesday and the dollar found support as investors' tempered some of their earlier enthusiasm about the prospect of an end to U.S. rate hikes.
MSCI's broadest index of Asia-Pacific shares outside Japan has gained more than 3% since a week ago and hit its highest since September on Tuesday. But it fell 0.2% in early trade on Wednesday. Japan's Nikkei rose 0.5%.
Overnight the S&P 500 snapped a five-session winning streak and fell 0.2%. Chipmaker Nvidia reported revenue well above Wall St expectations after market close, but shares fell 1.7% due to the company's downbeat China sales outlook.
Nasdaq futures were down 0.2% and S&P 500 futures fell 0.1% early in the Asia day. Volumes are likely to be lightened through the rest of the week by Thursday's Thanksgiving holiday in the United States.
"It appears that the short cover rally that began after the November (Fed meeting) is winding down and that buying and selling is beginning to alternate," said Nomura's chief macro strategist Naka Matsuzawa in a note to clients.
The Federal Reserve released minutes from that meeting overnight though traders judged that policymakers' promise to "proceed carefully" from here was not new information.
Ten-year Treasury yields were marginally lower at 4.40% in Asia trade. They have fallen about 50 basis points since the Fed held rates steady early in the month.
Interest rate futures markets see almost no chance the Fed hikes again and price about 90 basis points of rate cuts through 2024, with a 30% chance they begin as soon as March.
"Since the (Fed) believes that a soft landing is in sight, it would be foolish to risk it by hiking further than necessary," said Rabobank's senior U.S. strategist Philip Marey.
"If we were to see stronger economic and inflation data before the December meeting, longer-term rates are likely to rebound and substitute for a rate hike. Therefore we do not expect further hikes."
PROSPECTS FOR THE YEN
In foreign exchange markets, the dollar, which has been sliding since last week's benign U.S. inflation report, steadied overnight and lifted from multi-month lows on several peers.
It was broadly steady at $1.0921 to the euro and 148.17 yen in early trade on Wednesday. The Australian dollar was held to $0.6557 after recoiling on Tuesday from resistance at its 200-day moving average at $0.6588.
"We expect bond yield gaps to remain a tailwind for the yen and renminbi as inflation in the U.S. continues to moderate and investors discount more rate cuts from the Fed," said Jonathan Petersen, senior economist at Capital Economics.