Asian stocks retreated from two-month peaks on Thursday due to disappointing earnings from Wall Street majors, while the euro gave in to some profit taking after extending its rally overnight to a eight-week high.

The S&P 500 <.SPX> suffered its biggest decline in nearly two months as disappointing results from Goldman Sachs and Wells Fargo put a damper on the rally. <.N>

The MSCI index of Asia and Pacific shares excluding Japan <.MIAPJ0000PUS> extended its fall to more than 1 percent, weighed down by sectors such as technology <.MIASJIT00PUS> and materials <.MIAPJMT00PUS>, which fell by 1.7 and 1.2 percent respectively.

The materials sector was hit by a selloff in commodities, such as oil, which added to its previous day's losses, and a 2.8 percent plunge in U.S. corn futures on Wednesday.

The dismal earnings combined with weak U.S. housing data knocked 1 percent off the U.S. index on Wednesday and allowed investors to book some profits into a rally which has seen the market rise by nearly 10 percent since the start of December.

The selloff spilled into Asian markets such as the benchmark Nikkei <.N225> and Australia's S&P/ASX 200 index, though traders said a sharp drop might whet the appetite of bargain hunters.

We're also seeing slight signs of overheating in the market, after the Nikkei gained for three consecutive sessions, but bargain hunters will be active today and overall sentiment remains strong, said Hiroichi Nishi, general manager at Nikko Cordial Securities.

The drop in U.S. stocks gave a lift to U.S. Treasuries which consolidated gains in Asia, following an overnight recovery, when investors bought to unwind rate-locking trades amid hefty corporate issuances.

The 10-year yield settled at 3.35 percent, down from 3.47 percent at the start of the year.

The euro ran into some profit taking, after having extended its rally to an eight-week high above $1.35 overnight, bringing a key technical level in focus.

China's economy finished 2010 with a bang as its growth soared past expectations while inflation slowed just a touch, which analysts said could prod the authorities to ratchet up its easy-does-it approach to tightening.

A survey of around 500 economists across the world showed China again topping the economic expansion charts this year, as well as promising signs that the United States' economic revival will gain traction.

Elsewhere, the yuan edged closer to a record high after the central bank fixed the mid-point at its highest level since a landmark revaluation in 2005 even as Chinese President Hu Jintao was visiting Washington.

(Additional reporting by Antoni Slodkowski in TOKYO and Ian Chua in Sydney)

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