Asian markets struggled for direction on Tuesday as investors weighed signs of a slowing US economy against hopes the Federal Reserve's interest rate hiking cycle could be nearing its end.
Data showing a sharp drop in the central bank's preferred gauge of inflation for May fuelled a rally across equities in New York last week and Asia on Monday.
The readings followed a series of indicators suggesting the economy remained in rude health, putting pressure on the Fed to keep tightening monetary policy.
Bank boss Jerome Powell has warned more hikes are in the pipeline owing to still-elevated inflation and the strong labour market, though analysts question whether it will follow through with that. However, while traders take the view that "bad news is good news" as it gives the bank room to hold rates, the possibility of a contraction was keeping the optimism in check.
On Monday, a closely watched survey of US factory activity showed the sector shrank again in June and hit its lowest level since May 2020.
The reading from the Institute for Supply Management (ISM) also indicates the ongoing contraction in the sector is picking up pace.
Wall Street limped to a positive close -- with business thinned by traders winding down for the July 4 holiday -- but Asia was unable to maintain Monday's momentum
Hong Kong and Shanghai edged up, along with Wellington, Taipei and Jakarta, though Tokyo, Sydney, Singapore, Seoul and Manila dipped.
However, Jim Bianco, president and founder of Bianco Research, warned that while inflation was still falling, the Fed should be on alert as it could begin to climb again after getting to as low as three percent -- still above the bank's two percent target.
"If the inflation rate bottoms at three and starts drifting higher, the Fed's going to find this unacceptable, and that two rate hikes that we have priced in for the rest of the year will happen, if not three," he told Bloomberg Television.
Oil prices edged up on Tuesday, a day after dropping more than one percent as an initial rally sparked by Saudi Arabia and Russia's announcement of further output cuts faded away.
