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While Fed chairman Ben Bernanke is expected to paint a cautious picture on the world's largest economy, Asian and Latin American central banks by contrast are still tightening monetary policy and some are using currency appreciation to check price pressures.

The European Central Bank raised its policy rate this month for the first time since mid-2008 and is expected to raise rates at least once more this year.

That has given new legs to the "carry trade", in which investors borrow in a low-yielding currency to invest in higher-yielding assets or currencies.

Investors have been snapping up the high-yielding Australian dollar and South Korean shares .KS11, while showing heavy interest in Indonesia's upcoming dollar bond.

Market players also added to bearish dollar bets, especially against the euro and the Swiss Franc, on expectations the Fed will cling to a near-zero interest rate policy even as it lets a $600 billion bond purchase program wind down in June.

"Focus will be on the inaugural press conference and whether Bernanke is shifting along the dove-hawk scale," said Michael Sneyd, analyst at Societe Generale.

"Attention will also be on comments for how the Fed may respond to U.S. fiscal tightening. All-in-all, the meeting is likely to give the green light for risk appetite and for dollar bears to continue to be bearish."

The dollar index .DXY, which tracks its performance against a basket of major currencies, hit the lowest since August 2008 at 73.483, before cutting some losses.

FLOWS PICK UP

Asian shares rose after robust gains posted by U.S. indices overnight, driven by better-than-expected performances from U.S. corporate heavyweights. U.S. stock futures rose 0.1 percent, suggesting a higher open on Wall Street.

South Korea's benchmark KOSPI index .KSII rose to a record high for the third consecutive session before giving back some gains as investors took profits on automaker shares. It ended flat. Hong Kong shares .HSI rose, boosted by a broad rally in financials ahead of results from Chinese banks.

MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS rose to its highest level since January 2008, and was up 0.5 percent on the day.

Japan's Nikkei .N225 closed up 1.4 percent, supported by rebounding shares of large exporters. But it could face downward pressure after ratings agency Standard & Poor's revised its outlook on Japan's sovereign debt to negative.

Offshore flows into non-developed Asian markets have picked up after a January slump, with both emerging markets equity and bond fund groups extending their longest inflow streaks since mid-January, according to fund tracker EPFR Global.

The order book for Indonesia's eagerly awaited 10-year dollar-denominated bond has grown to around $5 billion for an issue expected to be between $1 billion to $1.5 billion in size, IFR said. Indonesia's markets have been a favorite among global investors because of the country's relatively high yields, decent economic growth and demographics.

China let the yuan rise to a post-2005 revaluation high, triggering gains in emerging Asian currencies.

Helping the case of carry trades, the Australian dollar shot to a new 29-year peak above the $1.0800 per U.S. dollar after higher-than-expected first quarter inflation suggested the central bank will eventually have to resume tightening.

SILVER PULLBACK

The dollar's woes have been further compounded by a recent drop in U.S. Treasury yields as rate traders bet that any Fed tightening would be a slow and gradual process.

In Asian time, the U.S. 10-year note yield was at 3.32 percent, just above a one-month low of 3.31 percent before the Fed decision. Ten-year yields are down by about 30 basis points since this month's highs.

In commodity markets, spot silver bounced 0.9 percent to around $46 per ounce level after falling by nearly 5 percent overnight. High volatility and the expiry of U.S. silver options added to the intensity of the decline of the precious metal.

Despite the sharp pullback in silver which rippled over into other commodities, Brent held above the $124 per barrel line, as Libya's civil war and violence-tinged unrest Syria and Yemen helped limit bearish sentiment on a price slide.

The rating agency said costs related to the March 11 earthquake, tsunami, and nuclear power plant disaster will increase Japan's fiscal deficit above prior estimates by a cumulative 3.7 percent of GDP through 2013.

"We revised the outlook on the long-term rating on Japan to negative to reflect the potential for a downgrade if fiscal deterioration materially exceeds these estimates in the absence of greater fiscal consolidation," S&P said in a statement.

"In light of the evolving developments at the TEPCO nuclear power plant, in particular, we regard these projections as uncertain. Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future," it said.

The yen dipped shortly after the announcement with the dollar climbing to an intraday high of 81.781 yen.

"Given the huge damage from the earthquake, everyone knows that government spending will be massive," said Junko Nishioka, chief economist at RBS Securities Tokyo.

"We are not expecting big new government bond issuance for the coming second supplementary budget but political deadlock is likely to heighten the negative risk for sovereign debt."

S&P affirmed its long-term rating on Japan at AA minus.

The government's top spokesman, Yukio Edano, said that while fiscal steps are needed for quake relief, Tokyo will strive to maintain trust in Japanese government bonds.

(Reporting by Leika Kihara; Editing by Joseph Radford)

Shares were down 1.2 percent after Amazon reported a 32.8 percent decline in first-quarter profits. But that was a far cry from the big sell-off when the company last reported quarterly results and shares lost 9 percent.

"The concern that people had, that they were going to spend more than the Street was expecting, happened," said Ken Sena, analyst at Evercore Partners. "But when you look at the kind of growth acceleration they are showing on the top line and surpassing pretty much all Street expectations, I think that clearly shows what they are doing makes sense."

In recent years, Amazon has fought to win market share through its Prime program of low-cost delivery of its retail goods and by offering inexpensive electronic books for its Kindle e-reader.

More recently, it has invested heavily in areas such as "cloud computing" and "music lockers" where fans store their music on Amazon's servers, to take on its rivals Google Inc and Apple Inc.

Amazon expects that its investing to win market share will work. It forecast current-quarter revenue of $8.85 billion to $9.65 billion, above Wall Street expectations of $8.7 billion, according to Thomson Reuters I/B/E/S.

Chief Financial Officer Tom Szkutak told analysts on a conference call that Amazon has to spend money to develop the technology infrastructure and distribution centers and support its growth. Revenues nearly doubled between 2008 and 2010.

For the company's first quarter, which ended March 31, revenue was $9.857 billion, above the average analyst estimate of $9.57 billion and 38.2 percent above a year earlier.

In contrast, data firm eMarketer estimated that U.S. retail e-commerce sales rose 13 percent in the quarter compared with a year earlier.

Amazon's sales increase was led by a 45 percent rise in North America. Growth elsewhere was 27 percent excluding the effect of currency exchange. Szkutak said that would have been 32 percent if not for Japan's massive earthquake last month.

But net income in the first quarter was $201 million, or 44 cents per share -- down from $299 million, or 66 cents per share, a year earlier. That was far below the 61 cents expected by Wall Street, according to Thomson Reuters I/B/E/S.

The company posted an 18.2 percent dip in operating profit for the quarter, reflecting the costs of competing in the highly promotional retail environment, with beefed-up investment in its cloud computing services.

SHRINKING OPERATING MARGINS

Operating margin, which Amazon has said is the best gauge of its profitability given the variety of items it sells, came to 3.3 percent, in the middle of the range it had forecast.

Still, that was a significant drop from the 5.5 percent margin in the year ago quarter.

"It's not a revenue problem, it's a profit problem," said BGC Partners analyst Colin Gillis. "But at the end of the day, you've got to remember that these guys are a discount retailer."

Amazon said it expects operating profit in the current quarter of $95 million to $245 million, after costs of $180 million for stock-based compensation and amortization of assets. Amazon had operating profit of $207 million in the second quarter last year.

Amazon shares were off 1.2 percent at $180.17 in trading following the earnings report, after slipping 1.7 percent, or $3.12, to end at $182.30 in regular-session Nasdaq trading.

(Graphic: Amazon.com: income and sales growth r.reuters.com/pet29r)

(Additional reporting by Nichola Groom and Lisa Baertlein in Los Angeles and Jessica Wohl and Brad Dorfman in Chicago; Editing by Gary Hill)

The company also forecast revenue for the current quarter that would beat Wall Street estimates and profit margins were in line with the company's expectations, helping lift its shares in after-hours trading.

"The concern that people had, that they were going to spend more than the Street was expecting, happened," said Ken Sena, analyst at Evercore Partners. "But when you look at the kind of growth acceleration they are showing on the top line and surpassing pretty much all Street expectations, I think that clearly what they are doing makes sense."

The company has been willing to sacrifice some profitability to win customers and build its new businesses. It has invested heavily in areas such as "cloud computing" -- which allows companies to store data on its servers -- to take on its rivals Google Inc and Apple Inc.

Amazon is also laying out money to open new distribution centers and cement its lead as the world's largest online retailer.

For the company's first quarter, which ended March 31, revenue was $9.857 billion, above the average estimate of $9.57 billion and 38.2 percent above a year earlier.

Net income in the fourth quarter was $201 million, or 44 cents per share -- down from $299 million, or 66 cents per share, a year earlier. That was far below the 61 cents expected by Wall Street, according to Thomson Reuters I/B/E/S.

The company posted an 18.2 percent dip in operating profit for the quarter, reflecting the costs of competing in the highly promotional retail environment, with beefed-up investment in its cloud computing services.

Operating margin, which Amazon has said is the best gauge of its profitability given the variety of items it sells, came to 3.3 percent, in the middle of the range it had forecast.

But Amazon expects that its investing to win market share will pay off. It forecast current-quarter revenue of $8.85 billion to $9.65 billion, above Wall Street expectations of $8.7 billion, according to Thomson Reuters I/B/E/S.

Amazon said it expects operating profit in the current quarter of $95 million to $245 million. In the same quarter last year, Amazon had operating profit of $207 million.

Amazon shares were nearly flat following the earnings report, after slipping 1.7 percent, or $3.12, to end at $182.30 in regular-session Nasdaq trading.

(Reporting by Phil Wahba; Editing by Gary Hill)