HONG KONG: Asian markets retreated Tuesday as investors grew increasingly concerned about the Federal Reserve's plans to wind back its financial support measures and lift interest rates within months.

While the fast-spreading Omicron coronavirus variant plays on nerves, traders are now coming to terms with the imminent end to the pandemic era of ultra-cheap cash, which helped the economic recovery and fanned a global rally for nearly two years.

A pick-up in consumer activity, surging wages, supply chain snarls and rising energy costs are combining to push inflation in several countries to highs not seen for a generation, ramping up pressure on central bankers to act before it gets out of control.

Asian markets swing as traders weigh Fed tightening, inflation

Several countries have already started hiking borrowing costs but all eyes are on the US Federal Reserve as it tees up its first move, with commentators predicting that to come in March, followed by two or three more by the end of the year.

In remarks released ahead of his Senate confirmation hearing on Tuesday, boss Jerome Powell said the bank was ready to act.

"We will use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched," his opening statement said.

"We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account."

Data on Friday showed fewer jobs than expected were created in December but there were plenty of openings and wages soared, suggesting further upward pressure on prices is likely.

Traders are now cautiously awaiting the release of US inflation figures on Wednesday, which could play a major role in the Fed's thinking.

The prospect of higher rates has rattled US markets at the start of the year. The Nasdaq is already down more than four percent as tech firms are more susceptible owing to their reliance on debt to drive growth.

While the tech-heavy index inched up slightly Monday, the S&P 500 and Dow closed in the red, though late dip-buying helped them recover from early steep losses.

Asia also suffered in early exchanges, with Tokyo returning from a long weekend break to end the morning lower, while Hong Kong, Shanghai, Sydney, Seoul, Wellington and Taipei also slipped.

Singapore and Manila were flat, though Jakarta rose.

"We think eventually this market will shift back toward growth, but we still got some wood to chop there; the valuations haven't corrected," Lori Calvasina of RBC Capital Markets told Bloomberg Television.

"This is a repricing. It's painful, it has a little bit more ways to go."

Key figures around 0230 GMT

Tokyo - Nikkei 225: DOWN 0.9 percent at 28,231.31 (break)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 23,674.11

Shanghai - Composite: DOWN 0.1 percent at 3,590.55

Dollar/yen: UP at 115.36 yen from 115.20 yen late Monday

Euro/dollar: UP at $1.1341 from $1.1337

Euro/pound: UP at 83.47 pence from 83.42 pence

West Texas Intermediate: UP 0.5 percent at $78.63 per barrel

Brent North Sea crude: UP 0.4 percent at $81.17 per barrel

New York - DOW: DOWN 0.5 percent at 36,068.87 (close)

London - FTSE 100: DOWN 0.5 percent at 7,445.25 (close)