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Shares elsewhere in Asia .MIAPJ0000PUS fell slightly and U.S. oil prices recovered to nearly $85 a barrel partly due to a surprise drop in weekly crude stocks.

Stocks in emerging markets in Asia have underperformed those in developed countries this year. Underscoring that trend, MSCI's Japan share index .MIJP00000PJP has risen around 7.5 percent this year, compared with a drop of more than 2 percent in MSCI's Asia Pacific share index excluding Japan.

But some analysts remain skeptical that such a trend will continue for long.

Rodrigo Zorrilla, head of markets Asia-Pacific, Citigroup, said some $10 billion of funds had moved from emerging market dedicated funds to the United States during the first two weeks of February.

"The question everybody is asking is whether that is the reversal of a trend of the bullish emerging market story or is that just a rebalancing of portfolio," Zorrilla said, adding that he supported the second view.

"We think the fundamentals are still very strong in Asia. And while there are some scares in the market relating to the political issues in the Middle East and inflation concerns around the world, as soon as the dust settles we will see that trend (of outflows) to slow down and stop."

INFLATION REPORT EYED

Sterling rallied to a 5- month peak against a currency basket after data on Tuesday showed inflation in Britain jumped to 4 percent, twice the Bank of England's target, prompting Governor Mervyn King to acknowledge that rates might rise more rapidly than economists had expected.

Analysts now expect a rate rise in May and the next market focus is the BoE's inflation report due at 1030 GMT.

Yuuki Sakasai, a strategist at Barclays Capital, said the inflation report would support King's comments overnight that suggested an early rate increase.

"But we do think that King is likely to use his news conference later on to warn against aggressively pricing in rate hikes. So the pound could gain on the report and fall on King's comments. On the whole we think risk is skewed to the downside," he said, adding that the pound could fall to around $1.60.

Sterling last traded at around $1.6150, compared with a high of $1.6170 overnight. The pound has gained some 3 percent against the U.S. dollar so far this year.

The euro edged up against the dollar, standing at around $1.3520 as of 0544 GMT.

Against the yen, the dollar last traded at around 83.75, not far from an eight-week high of around 83.90 yen hit the previous day, helped by the recent rise in U.S. Treasury yields.