TOKYO (REUTERS) - Asian shares stepped back from more than two-year highs on July 18 while the US dollar sagged on growing expectations that the Federal Reserve will take a more cautious approach to raising interest rates.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 per cent, a day after scaling its loftiest levels since April 2015.
Wall Street ended little changed on July 17 in low-volume trading, as investors braced themselves for a flood of second-quarter earnings reports later this week.
Japan's Nikkei stock index dipped 0.4 per cent in early deals, as markets resumed trading after a public holiday on July 17 and caught up to a stronger yen.
The dollar edged down 0.1 per cent on the day to 112.53 yen , well below its nearly four-month high of 114.495 last week.
The euro was steady at US$1.1477, while the dollar index, which tracks the greenback against a basket of six major rivals, wallowed at 95.131, not far from Monday's 10-month low of 95.018.
"It's hard to be bullish on the dollar, both from the monetary side and from the US politics side," said Mr Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
Fading support for United States President Donald Trump is also weighing on the dollar, he said, as the US administration tries to gather enough backers in the Senate to pass legislation to dismantle and replace the Affordable Care Act, commonly known as Obamacare.
"Trump's falling popularity, although it was not spectacular from the beginning, is another hurdle for pushing for the changes and that will be negative for the US economy and the dollar," said Mr Yamamoto.
Fed funds futures continue to show less than a 50 per cent chance of a rate hike in December after Fed Chair Janet Yellen sounded a cautious tone last week in her congressional testimony, and after downbeat US inflation and retail sales data on Friday.
Overall Asian sentiment remained underpinned by solid China data on Monday, which showed its economy expanded at a faster-than-expected 6.9 per cent clip in the second quarter, setting the country on course to comfortably meet its 2017 growth target.
Crude oil futures edged higher, with US crude rising 0.2 per cent to US$46.10 a barrel and Brent crude adding 0.1 per cent to US$48.49.
Crude prices had skidded about 1 per cent on Monday as investors held out for strong indications that an OPEC-led effort to drain a glut was proving effective.
