Asian shares and European stock futures advanced on Wednesday after a strong session on Wall Street, while U.S. treasury yields held near multi-year highs ahead of closely watched inflation data this week.

Investors across asset classes are devoting considerable thought to the pace and timing of interest rate hikes by central banks across the world.

Barring any big surprises, the consumer price index should cement expectations the U.S. Federal Reserve will raise interest rates next month, with a strong print offering further support to those tipping a larger 50 basis point rise.

MSCI's broadest index of Asia-Pacific shares outside Japan  added 1.5% to its highest in two weeks, helped by a 3.8% gain in Hong Kong-listed tech stocks  , especially index heavyweight Alibaba 9988.HK which rose 6.6%.

Japan's Nikkei  gained 1.2%.

Futures indicated the share rally would continue into European and U.S. trading, with the pan-region Euro Stoxx 50 futures up 0.81%, FTSE 100 futures rising 0.85% and e-mini futures for the S&P 500 EScv1 0.5% higher.

Overnight, three main Wall Street indexes closed higher with tech stocks including Apple Inc nd Microsoft Corp jumping, as did bank stocks supported by the prospect of higher U.S interest rates. .N

Nonetheless, the Nasdaq Composite  is still down 9.2% this year after a brutal January.

Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said market volatility was lingering as investors tried to figure out how often, how far and how fast central banks would raise interest rates.

"The overarching theme for the market is central banks’ monetary policies," he said. "I think volatilities will continue and will possibly increase...but over the longer term corporate balance sheets, particularly in Asian emerging markets look a lot better than they were earlier," he said.

Elsewhere in Asia Pacific, gains in tech names helped Korea's  rise 0.8% and Commonwealth Bank of Australia  , the country's largest bank gained 5.6% after announcing a A$2 billion share buyback.

Gains in Hong Kong financials and tech stocks meant the local benchmark .HSI rose 2%, unfazed by tighter restrictions to combat a new wave of COVID-19.

However, focus on U.S. inflation figures due Thursday is likely to cap further gains.

"Even though we sit in Asia, markets are still eagerly waiting for the Thursday CPI print out of the U.S. so are sitting on their hands right now," said Marcella Chow, Hong Kong based global market strategist at JPMorgan Asset Management.

"The market is currently expecting January's CPI to be 7.3% versus 7% in December, and if it comes in higher than expected we could see 10 year yields go higher and even reach 2%, and push a value rotation," she added.

Higher yields typically cause investors to move out of so called growth stocks, particularly technology names, into value stocks.

U.S. Treasury yields held firm in Asian trading, after touching multi-year highs the day before as did yields in the euro zone.

The yield on 10-year Treasury notes was 1.9397%, having hit 1.97% on Tuesday, its highest since Nov 2019, and the two-year was 1.3435%, just below its highest since March 2020.

In Asia, the 10-year Japanese government bond yield  touched 0.215% in morning trade, its highest since January 2016

Currency markets were pretty quiet, with the dollar index , which measures the greenback against six peers was at 95.559, little moved, down 0.07%.

Oil regained some ground after falling earlier in the week due to optimism around talks with Iran, leading to a possible rise in supply.

Brent crude futures LCOc1 rose 0.3%, to $91.15 a barrel, while U.S. crude CLc1 was at $89.7 a barrel, up 0.4%.

Spot gold was steady at $1,827.9 per ounce.

 

(Editing by Sam Holmes) ((alun.john@thomsonreuters.com;))