Asian shares near four-month peak as BOJ takes the stage

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.31% higher

SINGAPORE (Reuters) - Asian shares rose to a near four-month high on Friday as resilient U.S. economic data stoked expectations that the Federal Reserve is near the end of its rate-hike campaign, with investor focus switching to the Bank of Japan's policy meeting.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.31% higher and on course for 2.5% gain in the week, its best weekly performance since January. The index rose as high as 534.16, its highest since mid-February.

Japan's Nikkei (.N225) was down 0.79%, easing away from a fresh 33-year high it touched on Thursday, while Australia's resource-heavy S&P/ASX 200 index (.AXJO) rose 0.40%.

The BOJ rounds up a central bank heavy week, with broad expectations that the central bank will stick with its ultra-loose monetary policy even as inflation ticks higher.

Markets will focus on whether BOJ Governor Kazuo Ueda will offer a stronger warning on the risk of an inflation overshoot at his post-meeting news conference.

"Economic conditions are telling the BoJ that its ultra-easy policy has passed its used-by date, yet given what Ueda has been saying, the consensus view is that the BoJ will stand pat, said Rodrigo Catril, senior FX strategist at National Australia Bank.

"That said, if the BoJ wanted to surprise the market, today would be a good day."

China's stock markets got a boost this week after the central bank cut the borrowing cost of its medium-term policy loans for the first time in 10 months to aid a shaky economic recovery, with investors hoping more stimulus is on the horizon.

On Friday, China's benchmark CSI 300 Index (.CSI300) was 0.3% higher while Hong Kong's Hang Seng Index (.HSI) gained 0.4%.

The S&P 500 (.SPX) and Nasdaq (.IXIC) surged on Thursday to close at their highest in 14 months after data showed U.S. retail sales unexpectedly rose in May, while U.S. jobless claims came in higher than expected.

"If U.S. labour markets are finally starting to soften, this lends some credibility to the Fed’s decision to pause," said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.

The slew of data helped firm up bets that the Fed would not follow through with more rate hikes as the central bank hinted on Wednesday when it left interest rates unchanged.

Markets are now pricing in 67% chance of the U.S. central bank raising its interest rate by 25 basis points next month, according to CME FedWatch tool.

The European Central Bank on Thursday left the door open to more rate hikes as it flagged risks from rising wages and revised up its inflation projections. The ECB also raised interest rates by 25 bps taking its policy rate to 3.5%, a level not seen since 2001.

"(ECB President) Lagarde insisted that there was more ground to cover, but the overall tone of the press conference suggested that there might not be a whole lot more to do, despite the upgrade to the inflation forecast," strategists from NatWest Markets said in a note.

In the currency market, the euro was at $1.0941, hovering close to one-month high it touched on Thursday after the ECB decision. /FRX

The dollar index , which measures the U.S. currency against six major peers, was at 102.13, drifting near a one-month low.

The Japanese yen strengthened 0.18% to 140.04 per dollar, but was not far from the seven month low of 141.50 it hit on Thursday.

Oil prices eased, taking a pause from the previous session when futures gained steeply on optimism around higher energy demand from top crude importer China.

U.S. West Texas Intermediate crude fell 0.13% to $70.53 per barrel and Brent was at $75.54, down 0.17% on the day.

Spot gold added 0.1% to $1,958.99 an ounce. U.S. gold futures % to $1,957.80 an ounce.