Although signs of hope in the global economy are helping to support Asian stocks, worries are also growing about the strength of any recovery and whether the shift into riskier asset such as oil is justified.
In Japan, exporters' shares such as Canon fell amid worries about the strengthening yen eating into profits earned abroad, leaving the Nikkei average flat on the day.
Elsewhere, the MSCI index for Asian stocks outside Japan still rose 0.4 per cent, putting it on track for a about a 4.5 per cent gain for the week.
The gauge hit a seven-month high on Wednesday, marking a 55 per cent gain since the yearly low in early March.
A weaker US dollar is also strengthening Asian currencies, which is bound to hurt the export-dependent continent and further raise doubts among investors about whether a gain of more than 50 per cent in Asian shares excluding Jpaan since early March is excessive.
"Markets all around the world appear to be looking for direction, and any chance of a US downgrade would really hit U.S. assets such as the dollar and stocks,'' said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"For Japan, this situation comes just after earnings have come out and companies have set their currency rates, many of them at 95 yen. The chance of any further yen rise really paints a gloomy picture.''
The US dollar index, a gauge of its performance against six major currencies, fell as low as 80.257, its weakest since late December and was last down 0.2 per cent at 80.302.
The slide in the US currency comes as investors are finding it harder to ignore the effect of the Federal Reserve's zero interest rate policy and its efforts to keep long-term rates low through direct purchases of US government debt.
"S&P gave a clear criteria that a country whose government debt burden is approaching 100 per cent of GDP could have its rating downgraded,'' said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking, after the ratings agency lowered the outlook on the UK's debt rating to negative.
"That prompted investors to think they should not be so optimistic about credit rating on the United States.''
Surveys on Thursday also showed services and manufacturing in the euro zone contracted less than expected in May as firms saw the pace of decline in new orders ease, hinting the worst of a deep recession may be over.
But hopes for the global economy are being tempered by concerns about corporate profits.
Shares in Chinese personal computer maker Lenovo lost 5.7 per cent a day after posting a second consecutive quarterly loss.
Reuters
