Asia stocks surge as cooling inflation feeds hopes Fed will ease up

Asian shares spiked higher on Friday, while the dollar nursed steep losses after a smaller-than-expected increase in US consumer prices fuelled hopes that the Federal Reserve could tone down its aggressive pace of interest rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 3.72 per cent. Australia's S&P/ASX 200 index climbed 2.43 per cent and Japan's Nikkei rose 3 per cent.

The US consumer price index climbed 7.7 per cent year on year - the first time since February that the annual increase was below 8 per cent, and the smallest gain since January.

"It's something the market had been waiting for a long time," said Shane Oliver, head of investment strategy and chief economist at AMP Capital. "There was a lot of money sitting on the sidelines."

Overnight, the S&P 500 and Nasdaq notched up their biggest daily percentage gains in over 2-1/2 years on the data.

After four consecutive 75 basis-point interest rate hikes to tame decades-high inflation, the case is now building for the Fed to moderate its aggressive stance, said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

Financial markets have now priced in an 85 per cent likelihood of a smaller, 50 basis-point interest rate hike at the conclusion of next month's FOMC policy meeting, according to CME's Fedwatch tool.

Mainland China stocks opened 2.1 per cent higher, while Hong Kong shares shot up 6.5 per cent in early trade.

China stocks have had a turbulent few weeks - sliding on outbreaks of Covid-19, the ensuing lockdowns as well as feeble economic data, but also surging sporadically on hopes of an eventual economic reopening.

In the currency market, the US dollar index slumped more than 2 per cent overnight to 108.100, the most in over a decade. It was last at 108.230.

The greenback on Thursday recorded its worst day against the Japanese yen since 2016, having fallen 3.7 per cent. It has since clawed back some of those losses and on Friday was up 0.53 per cent at 141.69 yen.

The CPI data sent US Treasury yields to a five-week low overnight.

Bitcoin fell 1 per cent as crypto exchange FTX scrambled to raise about $9.4 billion from investors and rivals in a bid to save the firm.

Meanwhile, oil prices rose on Friday as fears of a US recession eased but they were on track for weekly declines of more than 4 per cent due to Covid-related worries in China.

US crude rose 0.25 per cent to $86.69 per barrel and Brent was at $93.88, up 0.22 per cent on the day.