(Fixes typo in headline)
* MSCI Asia-Pacific index up 0.5 pct, Nikkei rises 0.65 pct
* Dollar recovery continues, currency hits 1-week high
* Crude oil slips on stronger dollar
By Shinichi Saoshiro
TOKYO, Feb 21 (Reuters) - Japanese shares led Asian markets higher after a weak start on Wednesday, with Japanese export focused companies attracting investors as the dollar gained against the yen thanks to U.S. Treasury debt yields hovering near highs not seen in four years.
MSCI’s broadest index of Asia-Pacific shares outside Japan took early cues from overnight losses on Wall Street and lost 0.1 percent before rising 0.5 percent.
Australian stocks added 0.1 percent and South Korea’s KOSPI gained 0.3 percent.
Japan’s Nikkei recovered from an early slip to rise 0.65 percent. The Nikkei has gained in five out of the past 10 sessions, recovering from a four-month low amid turmoil in global markets.
U.S. equities pulled back sharply from record highs earlier this month as a steady rise in Treasury yields raised worries that the Federal Reserve could hike interest rates more frequently this year than initially expected.
“Market instability is likely to persist until the Fed’s policy meeting in March,” said Hiroaki Kuramochi, chief market analyst at Saxo Bank Securities in Tokyo.
The Dow and S&P 500 fell on Tuesday to snap a six-session winning streak as a sharp decline in Walmart weighed heavily.
Gains in Amazon and chip stocks helped the Nasdaq hold near the unchanged mark.
Treasury yields rose overnight with the benchmark 10-year yield crawling back to near a four-year peak as investors made room for this week’s $258 billion deluge of new government debt.
Treasury yields have risen in the wake of increased government borrowing. The U.S. Treasury Department has issued more debt in anticipation of a higher deficit from last year’s major tax overhaul and a budget deal that will increase federal spending over the next two years.
The dollar benefited from the higher yields, with its index against a basket of six major currencies rising to a one-week high of 89.802.
The index has bounced 0.7 percent so far this week after slumping 1.5 percent the previous week to a three-year low.
The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back their easy money strategies.
Confidence in the dollar has also been shaken by mounting worries over the U.S. budget deficit.
But the greenback managed to find bids once the dust began to settle after last week’s tumble.
“We are seeing the dollar being bought back after last week’s slide. The steady U.S. economy and the possibility of the Fed accelerating its rate increases will likely keep fuelling the dollar’s rebound, particularly against the euro and yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The dollar extended an overnight surge and gained 0.4 percent to 107.770 yen. The euro was flat at $1.2337 following losses of 0.55 percent the previous day.
The Australian dollar dipped 0.25 percent to $0.7866 and the New Zealand dollar was steady at $0.7348 .
The stronger dollar weighed on commodities, with Brent crude futures losing 0.6 percent to $64.88 per barrel and U.S. crude oil futures slipping 0.7 percent to $61.37 per barrel .
U.S. crude hit a near two-week high the previous day on news of inventory declines at a key storage hub and from expectations that top OPEC producers could extend cooperation beyond 2018.
Spot gold touched a one-week trough of $1,327.90 an ounce, having declined 1.4 percent so far this week. (Reporting by Shinichi Saoshiro; Additional reporting by the Tokyo markets team; Editing by Simon Cameron-Moore)