Asian shares and the dollar were on tenterhooks on Tuesday as investors awaited the looming outcome of the Federal Reserve's rates review, with all eyes on how the Fed steers monetary policy in the wake of Republican Donald Trump's surprise election win last month.

Men walk past an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, November 18, 2016.

Crude oil prices also pulled back after their surge to 18-month highs, while a raft of China data had little impact across asset markets.

Chinese data showed factory output and retail sales grew faster than expected in November, while fixed-asset investment was in-line with forecasts, adding to growing signs of stabilization in the world's second-biggest economy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged down 0.1 percent, while Japan's Nikkei stock index .N225 was off early lows but still down 0.2 percent by midday as the dollar came off overnight highs against the yen.

"The market has already priced in a rate hike and some are ready to take profits after confirming the result," said Masashi Oda, general manager of strategic investment department at Sumitomo Mitsui Trust Asset Management.

The Fed is widely expected to hike interest rates for the first time in 2016 at its two-day meeting, with markets pricing in a nearly 100 percent chance of a quarter percentage point increase to the Fed's target range of 0.25 to 0.50 percent.

What matters most to investors is the Fed's statement and economic projections, which will be examined for any signs of reaction to Donald Trump's surprise victory in the Nov. 8 U.S. presidential election.

"The big question is what sort of pace can we expect from the Fed for next year?" said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

U.S. Treasury yields have recently spiked on expectations that the Trump administration will enact policies to spark growth and inflation. In addition to these expectations, surging crude oil prices have also stoked inflation expectations.

On Monday, the yield on benchmark U.S. 10-year notes US10YT=RR touched 2.528 percent, its highest since Sept. 29, 2014. It stood at 2.465 percent on Tuesday.

Higher yields in turn lifted the dollar, which climbed as high as 116.120 yen JPY= on Monday, its highest since early February. But it was last flat on the day at 115.04 yen.

"There is some profit-taking, particularly by U.S. hedge funds, ahead of the Fed meeting and the upcoming Christmas holiday," Ogino said.

"But many Japanese importers are far behind in dollar-buying, so they would like to buy on dips, and the downside should be limited during Asian trading hours."

Asian shares and the dollar were on tenterhooks on Tuesday as investors awaited the looming outcome of the Federal Reserve's rates review, with all eyes on how the Fed steers monetary policy in the wake of Republican Donald Trump's surprise election win last month.

Crude oil prices also pulled back after their surge to 18-month highs, while a raft of China data had little impact across asset markets.

Chinese data showed factory output and retail sales grew faster than expected in November, while fixed-asset investment was in-line with forecasts, adding to growing signs of stabilization in the world's second-biggest economy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged down 0.1 percent, while Japan's Nikkei stock index .N225 was off early lows but still down 0.2 percent by midday as the dollar came off overnight highs against the yen.

"The market has already priced in a rate hike and some are ready to take profits after confirming the result," said Masashi Oda, general manager of strategic investment department at Sumitomo Mitsui Trust Asset Management.

The Fed is widely expected to hike interest rates for the first time in 2016 at its two-day meeting, with markets pricing in a nearly 100 percent chance of a quarter percentage point increase to the Fed's target range of 0.25 to 0.50 percent.

What matters most to investors is the Fed's statement and economic projections, which will be examined for any signs of reaction to Donald Trump's surprise victory in the Nov. 8 U.S. presidential election.

"The big question is what sort of pace can we expect from the Fed for next year?" said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

U.S. Treasury yields have recently spiked on expectations that the Trump administration will enact policies to spark growth and inflation. In addition to these expectations, surging crude oil prices have also stoked inflation expectations.

On Monday, the yield on benchmark U.S. 10-year notes US10YT=RR touched 2.528 percent, its highest since Sept. 29, 2014. It stood at 2.465 percent on Tuesday.

Higher yields in turn lifted the dollar, which climbed as high as 116.120 yen JPY= on Monday, its highest since early February. But it was last flat on the day at 115.04 yen.

"There is some profit-taking, particularly by U.S. hedge funds, ahead of the Fed meeting and the upcoming Christmas holiday," Ogino said.

"But many Japanese importers are far behind in dollar-buying, so they would like to buy on dips, and the downside should be limited during Asian trading hours."

Source: Reuters