HONG KONG: Asian equities pulled back on Thursday after a strong run-up in recent weeks as investors took a breather while keeping abreast of progress in US stimulus talks and the rollout of vaccines.

Trading was thinned by holidays in major markets, notably Chinese New Year, which will see most of the region closed for several days.

Global risk assets have been on a tear since November following Joe Biden's election win and the authorisation of drugs to fight the virus, while optimism has been given an extra boost in recent weeks as data point to falling infections, deaths and hospitalisations.

Now, the focus is on when governments start to ease containment measures that will allow people to return to a semblance of normality and get back to spending.

Traders also have an eye on Washington, where Biden's $1.9 trillion stimulus proposal is being discussed by lawmakers.

While there is an expectation the package will be watered down, the general view is that the US economy is in for another trillion-plus infusion around March. However, the negotiations are likely to be jammed up as senators embark on the second impeachment of Donald Trump.

Several observers have raised concerns that the spending splurge combined with the economic recovery will fire a surge in inflation, which has led to speculation the Federal Reserve's ultra-loose monetary policy might have to be tightened.

And a tepid reading on US inflation on Wednesday did little to dispel those fears, despite reassurances from the Fed that it will remain supportive until employment recovers.

"While inflation is not showing up in the data right now, inflation is on its way thanks to fiscal and monetary stimulus and pent-up consumer demand that should intensify as the economy reopens," Nancy Davis, of Quadratic Capital Management, said.

Biden calls Xi

Wall Street provided a soft lead, with the Dow slightly up at a new all-time high but the S&P 500 and Nasdaq were in the red, though they also are hovering around records.

Hong Kong fell, having climbed more than six percent in just under two weeks, while Sydney, Singapore, Manila and Wellington were also down. Tokyo, Shanghai, Seoul and Taipei were all closed for holidays.

"In the absence of any significant tier-one economic data to steer the good ship Recovery, investors and active managers could be sitting tight allowing the macro backdrop to shine a bit more brightly before getting their toes wet again on the 'bigger and more expensive' ticket items," said Axi strategist Stephen Innes.

There was little immediate reaction to news that Biden had spoken to his Chinese counterpart Xi Jinping for the first time since taking office.

The US president raised human rights concerns and "underscored his fundamental concerns about Beijing's coercive and unfair economic practices", the White House said.

Biden's policies towards Beijing are being closely followed after he said he would take a tough line on the superpower but would use a different approach to Trump, whose sledgehammer trade policy and hardline tactics sent global markets reeling.

Oil prices fell after days of gains fuelled by bets that slowing infections and the rollout of vaccines will boost demand down the line as economies recover.

Innes added that the drop could also partly be down to expectations that Saudi Arabia "could roll back (its) unilateral February/March production cuts and that OPEC could signal more production coming back online at the March meeting, given the sizzling recovery in oil prices".