* Headwinds seen for emerging markets on hawkish Fed
* China’s economy faces domestic, external risks - Premier Li
By Saikat Chatterjee
HONG KONG, March 15 (Reuters) - Asian stocks consolidated recent gains on Wednesday before a U.S. central bank policy meeting that could signal how much monetary tightening to expect during the remainder of the year, with an immediate rate hike fully priced in by markets.
Though recent data, particularly out of China, has fueled a rally in Asian equities since the start of the year, investors are expecting more headwinds for emerging markets due to an increasingly hawkish Fed.
“The positive sentiment towards emerging markets is not sustainable as the interest rate differential advantage in Asia’s favor is likely to reduce in the coming months,” said Frances Cheung, head of rates strategy for Asia ex-Japan at Societe Generale in Hong Kong.
Having posted its second-biggest daily gain this year in the previous session, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 percent near the day’s highs in cautious trading.
Japan’s benchmark Nikkei average was down 0.14 percent while stocks in mainland China and Korea declined 0.13 and 0.2 percent respectively.
Index futures in Europe pointed towards a cautious start.
Asian share markets have had a good start to the week thanks to positive news out of the region’s two economic powerhouses, China and India.
Strong data out of China this week have sparked a fresh rally in Hong Kong stocks, while Indian shares climbed to a record high on Tuesday as investors regarded Prime Minister Narendra Modi’s landslide victory in the northern state of Uttar Pradesh as an endorsment for his economic reforms.
While recent economic Chinese data has been supportive, Premier Li said at a press conference that China’s economy faces domestic and external risks this year, but added the country has many policy tools to cope with them.
“China’s economy had pretty good performance in January and February. March data will be crucial as investors are anxious for any hint on whether the recovery is sustainable,” said Linus Yip, strategist at First Shanghai Securities Ltd.
A worrying drop in global oil prices, hoever, has cast doubt on how much Asian policymakers are likely to raise interest rates this year to maintain their premium over U.S. rates.
Brent crude has lost more than 8 percent in the past five trading sessions despite a 1.2 percent bounce on Wednesday.
U.S. oil prices rose after industry data showed a surprise drawdown in U.S. crude stockpiles. West Texas Intermediate crude was up 1.4 percent at $48.40 a barrel.
Policy decisions at the Bank of England and the Japanese central bank along side a Dutch election vote within the next 36 hours were further reasons for investors’ cautious stance.
The U.S. dollar edged higher against major rivals ahead of a much anticipated U.S. Federal Reserve rate hike, and most attention will be focused on what Fed Chair Janet Yellen says about the future path of interest rates.
The dollar index was flat at 101.69, staying in a well worn recent range.
“Of course, everyone is waiting for the Fed, so we’re expecting range-bound trading until we get some clear signals about expectations for the rest of the year,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Markets are also awaiting a meeting of the Group of 20 finance ministers and central bankers in the German town of Baden-Baden starting on Friday, their first meeting since Donald Trump won the U.S. presidential election.
Gold rose 0.3 percent to $1200.06 before the Fed decision. (Reporting by Saikat Chatterjee; Editing by Simon Cameron-Moore)