Asian markets struggled to maintain an early rally Thursday as profit-taking offset optimism ahead of data that is expected to show another softening of US inflation, giving the Federal Reserve room to slow its interest rate hikes.

Wall Street's three main indexes provided a strong lead, with the S&P 500 and Nasdaq soaring more than one percent each thanks to a rush back into beaten-down tech firms.

With optimism over China's reopening already fuelling a rally across Asia, signs that the Fed's long-running monetary tightening campaign is finally paying off have provided investors with more reason to be happy.

The consumer price index (CPI) reading on Thursday is the key event for investors this week, though analysts warned that an above-forecast reading would deal a hefty blow to confidence on trading floors.

"An in-line or softer-than-expected CPI will likely result in a rally, whereas a hotter number could easily tip over the applecart," said Arthur Hogan at B. Riley Wealth.

"Good news for the economy can become good news for markets."

Asian traders started the day on a strong note but selling took over as the day wore on owing to profit-taking.

Hong Kong, which had piled on around eight percent since the start of the year, dipped, while there were also losses in Singapore, Taipei, Mumbai and Bangkok.

Tokyo was flat but Shanghai, Sydney, Seoul, Wellington, Manila and Jakarta rose.

Gains were also helped by comments from Fed official Susan Collins backing a quarter-point rate hike at the bank's next policy decision on February 1.

Collins, who is head of the Boston Fed, told The New York Times that slowing the pace of increases would give policymakers a chance to see how their efforts to rein in decades-high inflation were working.

CMC Markets analyst Michael Hewson said: "In a way it's not hard to understand why the markets believe a pivot might be coming given how headline CPI has consistently fallen back from the peaks of 9.1 percent seen in June.

"In November we came in at 7.1 percent which was well below expectations of 7.3 percent and a sharp fall from October's 7.7 percent, offering a boost to those who think that the Federal Reserve may not have to go as hard, or as far on rate hikes this year."

Investors are also keeping tabs on developments in China as it emerges from years of strict zero-Covid containment measures.

While the long-term outlook remains positive, soaring infections across the country are leading to worries about the effect on economic activity.

However, SPI Asset Management's Stephen Innes said: "Recent surveys suggest that the first wave has already peaked in China. And though spot economics remain poor, the market has discounted the near-term headwinds as hope springs eternal once the winter Covid waves pass."

Building expectations for Chinese demand and a healthy 2023 continue to put upward pressure on oil prices, which jumped around three percent Wednesday, with traders ignoring data showing a massive pick-up in US inventories.

"Energy traders should get used to seeing oil prices head higher," said OANDA's Edward Moya. "Oil demand is coming back and expectations are high that China's demand is about to skyrocket."

Several crude experts have tipped the commodity to top $100 a barrel this year, with top hedge fund manager Pierre Andurand warning last week that it could pass $140.

- Key figures around 0710 GMT -

Tokyo - Nikkei 225: FLAT at 26,449.82 (close)

Hong Kong - Hang Seng Index: DOWN 0.5 percent at 21,338.18

Shanghai - Composite: UP 0.1 percent at 3,163.45 (close)

Euro/dollar: UP at $1.0762 from $1.0758 on Wednesday

Dollar/yen: DOWN at 131.71 yen from 132.47 yen

Pound/dollar: DOWN at $1.2147 from $1.2150

Euro/pound: UP at 88.60 pence from 88.53 pence

West Texas Intermediate: UP 0.1 percent at $77.47 a barrel

Brent North Sea crude: UP 0.1 percent at $82.74 a barrel

New York - Dow: UP 0.8 percent at 33,973.01 (close)

London - FTSE 100: UP 0.4 percent at 7,724.98 (close)

dan/smw

THE NEW YORK TIMES COMPANY

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