Asia stocks stumble on risk-off mood; oil prices climb

Israel had on Thursday braced for a possible retaliatory attack after its suspected killing of Iranian generals in Damascus this week, and Prime Minister Benjamin Netanyahu said the country would harm "whoever harms us or plans to harm us".

In a later call with Netanyahu, U.S. President Joe Biden threatened to condition support for Israel's offensive in Gaza on it taking steps to protect aid workers and civilians.

"There is a little bit of edginess in the air not helped by a spike in amid an increase in Israel-Iran tensions," said Rodrigo Catril, senior FX strategist at National Australia Bank.

"The risk of escalation in the is rising."

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, tracking a late tumble on Wall Street as risk aversion dominated the market mood. The index was set to end the week little changed.

A holiday in China also made for thinner trading conditions.

Tokyo's Nikkei fell more than 2%, pressured in part by a stronger yen thanks to the prospect of further rate hikes there and more jawboning from Japanese officials. [.T]

Hong Kong's Hang Seng Index edged 0.23% lower.

Traders were hesitant to take on new positions ahead of Friday's closely-watched U.S. nonfarm payrolls report, which will feed into expectations for the Fed's rate outlook.

A slew of solid U.S. economic data out this week has stoked doubts about the pace and scale of Fed easing. A cooling U.S. services sector and comments from Fed Chair Jerome Powell this week, however, reinforced the view that rate cuts were likely to commence at some point this year.

Some other Fed officials have taken a more conservative view on the amount of easing required in light of a still-resilient U.S. economy, with Minneapolis Fed President Neel Kashkari, in particular, striking a more hawkish stance overnight.

Richmond Fed President Thomas Barkin also said on Thursday the U.S. central bank has "time for the clouds to clear" on inflation before starting to cut interest rates. Chicago Fed President Austan Goolsbee cited housing price pressures as the "biggest danger" on inflation.

"They said various things, but the consensus appears to be that Fed policy direction is highly data-dependent at this stage, and it needs to be more confident of further disinflation before cutting rates," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The comments from Fed officials supported the dollar against a basket of currencies, lifting it away from a two-week low struck after a downbeat U.S. services survey.

The euro and sterling each fell 0.1%, and the yen rose to a two-week high.

Fed fund futures currently point to just under 75 basis points worth of easing this year, closer in line with the Fed's projections and a significant pullback from nearly 160 bps worth of cuts priced in at the start of the year.

That shift has left U.S. Treasuries struggling, with the 10-year yield hovering near its highest in more than three months, last at 4.3094%. [US/]

The two-year yield firmed at 4.6474%. Bond yields move inversely to prices.

In commodities, Brent rose 0.3% to $90.91 a barrel, after striking a more than five-month high on Thursday.

U.S. crude gained 0.12% to $86.69 per barrel.

Gold retreated from a record high and was last 0.73% lower at $2,272.63 an ounce.