Asian stocks struggled on Friday to follow Wall Street's euphoria about a possible U.S. rate cut next month as anxiety over Sino-U.S. trade negotiations clouded investor sentiment in the region.
Also tempering appetite in Asia were fresh worries about the Middle East, after Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington and pushing the crude oil price higher.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1%. The index was up about 4% on the week, during which it brushed its highest level since May 8.
The Shanghai Composite Index rose 0.4%, Australian stocks declined 0.3% and Japan's Nikkei shed 0.2% amid the yen's big surge.
The S&P 500 hit a record high on Thursday after this week's Federal Reserve meeting boosted expectations that the central bank will cut interest rates as soon as next month to keep the U.S.-China trade war from stalling economic growth.
The Fed signaled easing after the conclusion of its policy setting meeting on Wednesday, saying it was ready to battle growing global and domestic economic risks.
"There is no doubt that this week's FOMC meeting outcome is positive for the financial markets including those in Asia," said Kota Hirayama, senior emerging market economist at SMBC Nikko Securities in Tokyo.
"That said, the FOMC alone won't be able to sustain Asian equities indefinitely until some kind of solution can be worked out for the U.S.-China trade war at the G20, since the region is particularly vulnerable to the conflict."
Investors have pinned hopes on the United States and China reaching some sort of compromise at the sidelines of the G20 summit in Japan on June 28-29.
In currency markets, the prospect of U.S. interest rates being lowered put the dollar squarely on the defensive.
The dollar index against a basket of six major currencies fell to a two-week low of 96.495. The index has shed roughly 1% this week.
The greenback has fallen 1.3% versus the yen this week and slid to a six-month low of 107.12 yen on Friday.
The euro was a touch higher at $1.1302 after popping up to an eight-day high of $1.1317 in the previous session. The single currency was headed for a weekly gain of 0.8%.
With the Fed expected to ease policy soon, and with other central banks such as the European Central Bank and the Bank of Japan seen following in their wake, government bonds were on a bullish footing.
The benchmark 10-year U.S. Treasury yield surged in price and its yield fell below 2% for the first time in 2-1/2 years on Thursday. It last stood at 2.007%.
The German 10-year bund yield touched a record low of minus 0.329% this week while Japan's 10-year yield fell to a near three-year trough of minus 0.185% overnight.
"In euroland and Japan, central banks are pedal-to-the-metal to revive dead economies after a dozen years of subpar growth," wrote Carl Weinberg, chief international economist at High Frequency Economics.
"In North America, the game has been to throttle well-performing economies before they overheat with inflation consequences."
In oil markets, crude rose to three-week highs after Iran shot down a U.S. military drone, raising fears of about fresh conflict in the Middle East and supply constraints.
U.S. crude oil futures were up 0.68% at $57.46 per barrel after rallying more than 5% the previous day.
Spot gold advanced to a six-year high of $1,410.78 an ounce as the prospect of lower U.S. interest rates helped boost the non-yielding precious metal. Gold has soared nearly 5% this week.
