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Asian stocks steady as calm returns

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Asian shares have found some calm following this week's heavy China-driven losses although the dollar sat at a more than one-year high against major peers, upheld by lingering safe-haven demand and expectations for tighter US monetary policy.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.06 per cent on Thursday, while the Nikkei lost 0.36 per cent a day after Japan's ruling party chose softly spoken consensus-builder Fumio Kishida as its new leader and the country's new prime minister.

Worries about economic growth in China due to a worsening power crunch combined with fears of a global slowdown, hitting Asian shares on Wednesday.

However, the dollar index - which measures the US currency against six major currencies - hit its strongest level in nearly 18 months against the yen and in 14 months against the euro. It held these gains in Asian hours, and was last at 94.314.

"(The dollar) is breaking key levels and there was no real resistance to the break so that tells you there was real underlying strength to that," said Chris Weston, head of research at Melbourne brokerage Pepperstone.

"Sometimes, it can become somewhat of a magical currency," he said, pointing to its support by global investors seeking safety and the Fed inching closer to reducing its massive asset purchases.

In addition, "the ongoing US debt ceiling stand-off could briefly amplify financial market jitters and support the USD in the short term", analysts at CBA said in a note.

US lawmakers continue to wrangle over funding the government but face a Friday deadline to prevent a shutdown approached, something that also capped gains in US equities overnight.

In Asian equity markets, Hong Kong stocks fell one per cent but these were largely balanced by a 1.1 per cent rise in Australia.

Chinese blue chips gained 0.5 per cent after data published early on Thursday showed China's services sector returned to expansion in September after COVID-19 outbreaks receded.

However, but factory activity unexpectedly shrank as high raw material prices and power cuts continued to pressure manufacturers.

The other main drag on investor sentiment in greater China was embattled developer China Evergrande, whose shares swung back and forth, and were last down 2.2 per cent

The company was due to pay interest on a dollar bond on Wednesday, but Reuters reported that some offshore bondholders had not been paid interest by the end of the Asian day.

Overnight, the Dow Jones Industrial Average and the S&P 500 both posted small gains but the Nasdaq Composite dropped 0.24 per cent.

Oil prices edged lower, extending losses after official figures showed an unexpected rise in .S inventories.

Brent crude was down 0.14 per cent to 78.53 a barrel, US crude dipped 0.03 per cent to $US74.81.

Spot gold traded at $US1,731.99 per ounce, near a seven-week low, constrained by a strong dollar.

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