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By Ankur Banerjee
SINGAPORE, Sept 29 (Reuters) - Asian shares had their best day in weeks on Friday but were still on track for their worst quarterly performance in a year as worries over elevated interest rates dragged on sentiment, while the dollar wobbled and oil prices held their ground.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 1%, and were set for their biggest one-day percentage rise in four weeks.
The index though remained close to the 10-month low it touched on Thursday and was set for a 4% drop in the July-September period, its worst quarterly performance since a 13.6% drop in the same period last year.
Futures indicated that the relief rally might continue in Europe, with the Eurostoxx 50 futures up 0.07%, German DAX futures up 0.19% and FTSE futures up 0.12%.
Investors are watching out for the U.S. personal consumption expenditures price index due later on Friday, but before that euro zone inflation data will take the centre stage.
Economists polled by Reuters expect the inflation rate across the 20 countries that use the euro to fall to 4.5% in September from 5.2% in August.
Data on Thursday showed German inflation fell in September to its lowest level since Russia launched its full-scale invasion of Ukraine.
The recent rise in Treasury yields to 16-year highs has cast a shadow over the stock market, with the Federal Reserve's hawkish tilt last week also weighing on risk sentiment.
Data showed the U.S. economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, but a looming government shutdown and an ongoing strike by auto workers are dimming the outlook for the rest of 2023.
"During the most recent Fed press conference, (Fed Chair Jerome) Powell mentioned that while the Fed doesn’t target levels of real GDP, it evaluates whether it poses a risk to achieving the 2% inflation target," said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
"From this perspective, the current GDP figure is not seen as a significant threat and may provide some comfort in an otherwise concerning inflationary environment."
In rest of Asia, Japan's Nikkei was 0.34% lower, while Australia's S&P/ASX 200 index rose 0.56%. Hong Kong's Hang Seng Index surged 2.7%. The Chinese markets were closed for a holiday and are on a break next week.
Investor focus is zeroed in on the Chinese property sector after China Evergrande Group said its founder is being investigated over suspected "illegal crimes".