The U.S. dollar rose marginally on Wednesday to hit its highest levels since late October against a basket of major currencies as the euro extended its losses over worries about euro zone sovereign debt. The dollar's strength boosted exporters in Japan, helping to push the Nikkei average up to a four-month high, while gold and silver inched up again after pulling back from record highs reached on Tuesday.
The dollar gained as U.S. Treasury bond yields rose, with the impact of the currency move felt across asset classes. The dollar index (.DXY) rose as high as 77.869, a level it last touched in late October.
"We've failed to notice that there is an improved tone to U.S. data and that is manifesting itself in a bounce in the U.S. dollar and it is manifesting itself in a bounce in U.S. Treasury yields," said Robert Rennie, chief currency strategist at Westpac Bank in Sydney.
"That is a process that can go a bit further. It's quite a potent force in the short term," he said.
Wall Street offered a bearish cue for Asia as stocks fell for a second day with selling picking up into the close. The MSCI index of Asian shares outside of Japan (.MIAPJ0000PUS) fell 0.7 percent.
However, the dollar boosted Japan's Nikkei average (.N225) as exporters were among the chief beneficiaries of the currency's rise. Canon Inc (7751.T) rose 2.3 percent and Advantest (6857.T) climbed 2.6 percent
The Nikkei firmed 1.2 percent to 9,807.6 after trading earlier as high as 9,842, its highest level since June.
Japanese banks also pushed the Nikkei higher on hopes they would not be the main focus of global regulators because of their domestic focus. Mizuho Financial Group (8411.T) soared 5.9 percent.
Japan's stock market has struggled to break decisively through 9,800, but traders said a clear move beyond resistance at 9,807 may signal the start of a more sustained rally.
"The July peak had formed resistance for the Nikkei, and if it manages to end the day above the level, more gains will clearly be in order," said Koichi Nosaka, a market analyst at Securities Japan, Inc.
The euro fell around 1 percent to $1.3775, with concerns about the cost of protection against Irish and Portuguese government debt continuing to weigh on sentiment.
Currency tensions are high on the agenda at this week's G20 summit of advanced and developing economies.
A meeting in Seoul on Tuesday on key issues, including exchange rates, ended inconclusively. Another session is scheduled for Wednesday.
The firmer dollar weighed on dollar-denominated commodities prices.
Gold traded around $1,400 per ounce in Asia, a slight uptick after losing $30 from the record high of $1,424.10 on Tuesday.
Spot silver, which hit a record of $30 per ounce on Tuesday, also partially recovered from a selloff, trading around $27.50 per ounce.
U.S. crude futures slipped 10 cents to $86.82 per barrel, backing off a two-year high on Tuesday. a
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