Figures released Tuesday showing a slower-than-expected rise in the US October consumer price index lit a fire under global equities, cementing traders' views that the Federal Reserve would no longer need to hike interest rates and even fuelling talk of cuts next year.
Hopes for a further slowing in inflation were boosted the next day by figures showing producer prices had also come in below forecasts.
However, a slightly above-estimate print on retail sales growth tempered the mood, even as it marked a sharp drop from the previous month.
The readings allowed dealers to step back and take a pause from their recent buying, leaving Wall Street's three main indexes only slightly higher, and pushing Asian stocks lower on Thursday.
Hong Kong, which jumped almost four percent the day before, led losses as it gave up one percent, while Tokyo, Shanghai, Seoul, Sydney, Wellington, Bangkok and Jakarta were also in the red.
Singapore, Taipei, Manila and Mumbai eked out gains.
Still, observers said the pullback was not unusual and remained upbeat heading into the new year.
"The soft producer price index reading has the potential to magnify the message conveyed by the consumer price index report," said Stephen Innes at SPI Asset Management, adding that some "overly optimistic" traders could take the readings as disinflation might be in the pipeline.
"The retail sales report and the PPI figures were highly accommodating to a Goldilocks interpretation, although after Tuesday's fireworks, it may already be in the price," he said referring to data that is neither too strong nor too weak.
- Biden, Xi hold talks -
TradeStation's David Russell said there was a growing belief that the Fed had managed to thread the needle in bringing inflation down while also keeping the economy humming and avoiding a sharp slowdown.
"Price growth is moderating, but with strong demand on the sidelines. The soft landing is taking shape," he said.
US President Joe Biden said much-anticipated talks with his Chinese counterpart Xi Jinping were the "most constructive and productive" of their relationship, as the two try to find some common ground after years of tensions.
"We've made some important progress, I believe," he told reporters.
The meeting in California ahead of the APEC summit saw the two reach agreements on various issues including high-level military communications and artificial intelligence.
Long-running tensions between the two global superpowers have weighed heavily on markets, with investors concerned about the impact on trade and geopolitics.
Later, Xi told US business leaders that China was "ready to be a partner and friend of the United States".
Axioma's Olivier d'Assier said: "I think it goes a long way (towards) removing one of the worries that investors had."
"The relationship has been going downhill since last year. So we are clearly seeing a bottom. We weren't expecting much out of this meeting. They both extended an olive branch," he told Bloomberg Television.
"And they're talking, which is best, which is more than what we had maybe a few months ago. So I think the market will take that as a check mark of this. Less geopolitical risk on the table."
There was little major reaction to news that US lawmakers had passed a stop-gap budget bill Wednesday to keep federal agencies running for another two months, averting a painful shutdown of the government that many had warned could deal a blow to the economy.
The deal came just before a Friday night deadline following a proposal by new House Speaker Mike Johnson, meaning more than a million public workers would continue being paid through the Thanksgiving and Christmas periods.
Ratings agency Moody's last Friday downgraded its outlook on US debt to negative from stable, citing large debts and political gridlock.
Moody's is the only major agency to maintain its top-level rating for US sovereign debt.
- Key figures around 0700 GMT -
Tokyo - Nikkei 225: DOWN 0.3 percent at 33,424.41 (close)
Hong Kong - Hang Seng Index: DOWN 1.1 percent at 17,883.81
Shanghai - Composite: DOWN 0.7 percent at 3,050.93 (close)
Dollar/yen: DOWN at 151.36 from 151.37 yen on Wednesday
Pound/dollar: DOWN at $1.2397 from $1.2414
Euro/dollar: DOWN at $1.0844 from $1.0850
Euro/pound: UP at 87.44 pence from 87.36 pence
West Texas Intermediate: DOWN 0.6 percent at $76.20 per barrel
Brent North Sea crude: DOWN 0.5 percent at $80.77 per barrel
New York - Dow: UP 0.5 percent at 34,991.21 (close)
London - FTSE 100: UP 0.6 percent at 7,486.91 (close)
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