The feel-good factor that characterised much of July has given way to uncertainty about the US central bank's plans following a mixed jobs report and warnings from policymakers that more was needed to finally get prices under control.
Ongoing weakness in China's economy -- and lack of concrete action by authorities to address it -- are also taking their toll on investor sentiment, helping to drive a retreat in global markets in recent weeks.
All eyes are on the release later Thursday of the US consumer price index for last month, a closely watched gauge of inflation that plays a key role in the Fed's decision-making on monetary policy.
While rate hikes have dampened steep price rises -- from a four-decade high of 9.1 percent in June last year to three percent now -- observers warned officials would find it harder to get inflation back down to its two percent target.
After falling for 12 straight months, forecasts are for a slight uptick in the CPI, partly because of rising oil costs.
However, core inflation is tipped to ease again, which commentators said should allow the Fed to stand pat on rates at its next meeting in September.
The US central bank hiked in July but indicated that could be the last such move, after more than a year of tightening.
Fawad Razaqzada, at City Index and Forex.com, said a "small beat" would be tolerable for investors.
"A goldilocks outlook in the US is what stock market investors on Wall Street have been enjoying this year -- until the recent weakness," he said in a note.
"They will be looking for signs that the health and sentiment of the consumer remains positive, enough not to increase the risks of a further Fed rate increase, and yet not too depressing to raise recession alarm bells."
All three main indexes on Wall Street ended in the red Wednesday, dragged by tech firms, and Asia largely followed suit.
Tokyo, Shanghai, Sydney, Singapore and Jakarta edged up slightly but Seoul, Wellington, Mumbai, Bangkok, Taipei and Manila were all down.
Hong Kong was barely moved.
Luxury and travel firms boosted European markets after China lifted a Covid-era ban on outbound group tours to dozens of countries, which could see crowds of Chinese tourists return to destinations around the world.
London, Paris and Frankfurt rallied in the morning.
Investors are keeping tabs on China, hoping for measures to support the ailing economy, after news that the country had slipped into deflation for the first time in more than two years and exports plunged at their fastest pace since the early days of the pandemic.
With China being a key driver of global growth, the long-running slowdown is fuelling concerns about possible spillover effects.
There was also a little nervousness after President Joe Biden signed an executive order directing the Treasury to restrict certain US investments in China in sensitive high-tech sectors, including semiconductors, quantum computing and artificial intelligence.
Beijing hit out at the move, saying it "severely disrupts the security of global industrial and supply chains".
The order came even as the two sides have been trying to iron out some differences, after years of tensions.
Oil prices rose to extend recent gains, with both main contracts at multi-month highs, on worries about Russian supplies following a Ukrainian attack on one of the country's tankers.
Output cuts by Moscow and OPEC giant Saudi Arabia were also providing strong support to the market, analysts said.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: UP 0.8 percent at 32,473.65 (close)
Hong Kong - Hang Seng Index: FLAT at 19,248.26 (close)
Shanghai - Composite: UP 0.3 percent at 3,254.56 (close)
London - FTSE 100: UP 0.1 percent at 7,597.34
Euro/dollar: UP at $1.1007 from $1.0975 on Wednesday
Pound/dollar: UP at $1.2750 from $1.2720
Euro/pound: UP at 86.35 from 86.26 pence
Dollar/yen: UP at 143.87 yen from 143.38 yen
West Texas Intermediate: UP 0.3 percent at $84.63 per barrel
Brent North Sea crude: UP 0.3 percent at $87.84 per barrel
New York - Dow: DOWN 0.5 percent at 35,123.36 (close)
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