Asia Stocks Tread Water, China Sinks, All Eyes On Fed

Asian shares held near three-month lows on Wednesday as a rally in Chinese stock markets faltered, while the U.S. dollar stayed static as investors waited for clues from a Federal Reserve meeting on when U.S. interest rates are likely to rise.

Endless wrangling over the Greek debt crisis also kept broader sentiment leaning towards safe haven assets. Both Japan's Nikkei and Korea's KOSPI flipped into negative territory.

MSCI's index of Asia-Pacific shares outside Japan edged up 0.4 percent from a three-month low on Tuesday.

Hong Kong's stock market was wallowing at two-month lows.

"The China and Hong Kong stock markets appear to be ripe for some correction thanks to their expensive valuations unless we see some big stimulus measures from authorities and that will keep risk appetite on the backburner," said Grace Tam, a markets strategist at JP Morgan Asset Management in Hong Kong.

The Shanghai market had gained 50 percent since the start of the year, making Chinese stocks the world's best performers in U.S. dollar terms.

The frothiness was evident from Thomson Reuters data that showed some stock markets, such as the Shenzhen stock exchange, trading far above their 10-year median average, while the price-to-earnings valuations on the MSCI Asia-ex Japan index is only slightly above its ten-year average.

On Wall Street, the Dow ended Tuesday up 0.64 percent, while the S&P 500 added 0.57 percent and the Nasdaq 0.51 percent.

In Athens, Prime Minister Alexis Tsipras accused Greece's creditors on Tuesday of trying to "humiliate" Greeks with more cuts as he defied a growing drumbeat of warnings that Europe was preparing for his country to leave the euro.

The public rancor left little hope that a meeting of EU finance ministers on Thursday would make any progress.

SAFETY FIRST

While markets appear to be taking the escalating eurozone crisis in its stride for now, some investors snapping up safe haven assets such as German Bunds and U.S. Treasuries.

Outflows from emerging market equity and bond funds rose last week with equity funds seeing their biggest weekly outflow since 2008, according to EPFR data compiled by BNP Paribas. Debt funds saw similar outflows as the pace of selling picked up.

The euro was hovering around $1.1252, well within the $1.1150/1.1384 range of the past week or so.

The U.S. dollar index, which measures it against a basket of currencies edged lower.

The dollar also barely budged on the yen at 123.45, with most major currencies in a holding pattern, as traders waited for the conclusion of the Federal Open Market Committee meeting.

The Fed's statement is due at 1800 GMT, followed half an hour later by Chair Janet Yellen's news conference where every syllable will be dissected for clues on the timing of lift off for interest rates.

There will be particular attention on the median forecast for the funds rate over 2015 which could be trimmed from the previous 0.625 percent, in line with Yellen's assurance that any tightening will be very gradual.

In commodities, oil prices were a shade firmer as plentiful output was met by strong demand, with the market waiting for U.S. storage figures later in the day.

U.S. crude futures edged up 11 cents to $60.11 a barrel, while Brent added 5 cents to $63.78.

Gold was sidelined at $1,180.50 an ounce.