Most Asian stocks tiptoed higher in early trade on Wednesday, lifted by hopes that the U.S. might cut interest rates to calm turbulent markets, but the stronger yen weighed on Japan's exporters, such as Toyota Motor.

Although sentiment was lifted by a buoyant Wall Street performance on Tuesday, the mood remained wary as investors try to gauge how the U.S. mortgage crisis that has roiled global markets will play out.

Major financial bodies around the world are trying to calm fears about the fallout from the U.S. subprime sector, but it's not over yet and caution remains, said Choo Hee-yeop, deputy general manager of asset management strategy at Korea Investment and Securities.

U.S. Treasury debt rallied further on Tuesday as the flight into the safe-haven of government bonds continued.

Speculation that the Federal Reserve might cut its benchmark interest rate soon was sparked by comments from Sen. Christopher Dodd, chairman of the Banking Committee, that Fed Chairman Ben Bernanke had told him that the central bank would use all available tools to calm financial markets.

But the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker said a rate change due to market turmoil would only be warranted if it hurts the inflation or growth outlook.

Analysts expect a limited impact after China raised interest rates on Tuesday for the fourth time this year, as the move had been largely expected.

MSCI's measure of Asia Pacific stocks excluding Japan was up 0.1 percent at 8:45 p.m. EDT, a modest move compared with a 6 percent surge on Monday -- its biggest one-day percentage gain since September 1998.

The MSCI index is now almost 9 percent above a five-month trough plumbed last Friday, but still almost 14 percent below the July 24 record high.

But Tokyo's Nikkei average fell 0.31 percent, paring some of Tuesday's 1.1 percent gain, with exporters such as Toyota Motor Corp. (7203.T: Quote, Profile, Research) falling. Investors were largely focused on how the yen moves and this week's decision on interest rates by the Bank of Japan.

Exporters tend to benefit from a weaker currency as it boosts the value of overseas sales.

YEN STRONGER

The yen held onto gains in early trade as jitters about global credit conditions led investors to shed risky assets funded by borrowing in the Japanese currency.

People are willing to accept low yields in exchange for safety right now, and you see that in carry trades, said Kathy Lien, senior currency strategist at DailyFX.com.

The yen traded around 114.34 at 8:31 p.m. EDT, compared with 114.40 yen in late New York trade.

In other regional markets, Australian shares fell 0.1 percent on Wednesday after two straight sessions of gains, as persistent worries about credit markets pressured banking shares while Caltex Australia Ltd fell on a tumble in oil prices.

The benchmark S&P/ASX 200 index fell 8.3 points to 5,981.1 by 8:02 p.m. EDT, after rising nearly 1 percent in the previous session.

But the move in the oil price boosted Seoul shares, which rose 0.7 percent as fuel dependent firms such as Korean Air Co rose following a drop in oil prices, while Samsung Electronics gained on hopes for increased chip supplies to Apple Inc..

The benchmark Korea Composite Stock Price Index (KOSPI) was up 0.69 percent to 1,748.16 points by 0005 GMT, adding to gains in the previous two sessions.

U.S. crude oil futures finished sharply lower on Tuesday, pressured by news Hurricane Dean weakened as it approached Mexico's oil operations well south of the United States and after technical support was broken.

On the New York Mercantile Exchange, expiring September crude (CLU7: Quote, Profile, Research) fell $1.65, or 2.32 percent, at $69.47 per barrel, trading from $68.76 to $71.50. The intraday low was the weakest since $67.07 was struck on June 27.

China Ben Bernanke Japan