TOKYO Asian shares steadied on Wednesday after Wall Street managed to weather a fresh twist in the political controversy surrounding U.S. President Donald Trump's administration, while investors looked ahead to Federal Reserve Chair Janet Yellen's comments later in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.1 percent while Japan's Nikkei .N225 slid 0.3 percent.
"Yellen's testimony is the biggest focus. I don't expect shares to move much in either direction ahead of that," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
U.S. stocks took a brief tumble after emails disclosed Trump's eldest son cited Russian support for his father's 2016 election campaign.
By the closing bell, Wall Street shares had clawed back their losses in part as the Senate announced a two-week delay to its August recess to allow more time to tackle a measure that would repeal key parts of Obamacare, as well as pursue other legislative priorities.
Still, it remained unclear whether U.S. Senate Republicans have the votes to pass the measure or even what form it would finally take.
"The e-mails look pretty bad but then again they don't look like decisive evidence (for illegal behavior) either. I doubt this alone would lead to a risk-off market," said Hiroko Iwaki, senior fixed income strategist at Mizuho Securities.
On the other hand, the dollar failed to recover after the damage suffered from the new twist in the Trump campaign's alleged links with Russia.
The euro EUR= held at $1.1469, having hit a 14-month high of $1.1480 on Tuesday.
The dollar also lost steam against the yen, which had been under renewed pressure following Friday's bond-buying by the Bank of Japan which highlighted divergent monetary polices between the two countries.
The U.S. currency fetched 113.84 yen JPY=, slipping a half yen from a four-month high of 114.495 yen touched on Tuesday.
The dollar index against a basket of six major currencies .DXY =USD was hovering at 95.70, within sight of its nine-month low of 95.47 plumbed at the end of June.
U.S. Treasuries yields stayed below their recent peaks, with the 10-year yield at 2.360 percent US10YT=RR, compared to 2.398 percent marked on Friday, its loftiest level in almost two months.
Ahead of Fed Chair Yellen's testimony to Congress on the state of the U.S. economy from 1400 GMT, two of her colleagues cited low wage growth and muted inflation as reasons for caution on further interest rate increases.
Fed Governor Lael Brainard embraced the plan to reduce the balance sheet "soon," but suggested her support for any future rate increases will depend in part on how inflation shapes up.
In addition, at a separate event on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari said he finds it hard to believe that the U.S. economy is in danger of overheating when wage growth is so low.
As a result, traders trimmed expectations of a rate hike by the end of the year, with dollar interest rate futures FFF8 pricing in about a 55 percent chance compared to about 60 percent earlier.
"I would think Brainard was in a way speaking for Yellen. It seems like the Fed is becoming cautious about rate hikes," said Iwaki of Mizuho Securities.
Reaction was largely muted to a story by Politico that Trump is increasingly unlikely to nominate Yellen next year for a second term, and National Economic Council Director Gary Cohn is the leading candidate to succeed her.
Oil prices held firm after strong gains on Tuesday on reports showing cuts in U.S. oil production and declines in U.S. crude and European product stockpiles.
U.S. crude futures CLc1 traded at $45.81 per barrel, up 1.7 percent so far on Tuesday, extending their recovery from Monday's near two-week low of $43.65.
(Editing by Shri Navaratnam)