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U.S. consumer still spending, supports economy hopes

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Microsoft to monetise AI features

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Bonds rally as ECB hawk sounds dovish

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Hang Seng extends slump as China outlook darkens

By Tom Westbrook

SYDNEY, July 19 (Reuters) - Asia's stock markets were mixed on Wednesday with growth concerns dragging on China's equities while shares gained in Japan and Australia after healthy U.S. company earnings and retail data added to hopes that a recession there can be avoided.

Dovish remarks from a European Central Bank policymaker boosted bonds and dragged the euro lower. Hotter-than-expected inflation lifted the New Zealand dollar a little and stoked some market nerves ahead of British CPI due later in the day.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3%, with a 1.3% drop in Hong Kong offseting gains of 0.6% in Australia and 0.1% in South Korea.

Japan's Nikkei rose more than 1% to touch a two-week peak. Overnight the S&P 500 rose 0.7% to hit a three-month high, with results propelling bank shares. Futures were flat in Asia.

Headline U.S. retail sales data came in below forecasts, but core sales which exclude food, fuel and building materials, rose a solid 0.6% in June and had economists lifting GDP forecasts.

"You can sense the probability of a soft landing," said Tapas Strickland, head of market economics at National Australia Bank in Sydney. "Core inflation is coming down and there's momentum from the consumer."

The Atlanta Fed's influential GDP Now tracker has the U.S economy growing an annualised 2.4% in the second quarter, slightly higher than it's prediction of 2.3% a week earlier.

Morgan Stanley, Bank of America and Bank of New York Mellon shares rose sharply on strong results and an upbeat outlook overnight. Microsoft shares rose 4% - adding $100 billion in market value - after announcing charges for artificial intelligence features in its office software.

Soft Chinese growth data on Monday and the lack of any urgent policy response kept the mood dreary in Hong Kong, where consumer focussed stocks led losses.

INFLATION RISKS

A rally in Europe led global bond markets after ECB governing council member Klaas Knot said hikes beyond next week's meeting were "by no means a certainty."

"That the language stemmed from an often-hawkish voice certainly turned heads and drove European sovereign debt markets stronger and lower in yield," said Brian Daingerfield, head of G10 currency research at NatWest Markets in New York.

Two-year German bund yields fell almost 8 basis points to 3.177%. Benchmark 10-year U.S. Treasuries fell slightly and were steady at 3.7794% on Wednesday.