Asian shares step back from New Year rally as trade concerns resurface

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.1 percent in early trade, slipping further from Tuesday's 10-year peak. Japan's Nikkei lost 0.6 percent.

U.S. shares snapped their New Year rally on Wednesday while the Canadian dollar and the Mexican peso fell after a Reuters report said Canada increasingly believes that U.S. President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty.

U.S. bond prices tumbled, boosting the benchmark 10-year Treasuries yield to a 10-month high of 2.597 percent after Bloomberg reported that China, the biggest foreign holder of U.S. Treasuries, could slow or stop buying government bonds.

"I would think that China is flexing its muscles as the United States is looking into measures to deal with its trade deficit with China," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

"I have been expecting rising trade frictions between the United States and China this year. It appears China is quick to touch the Achilles heel of the States," he added.

Investigations into U.S. imports are due to report to Trump this month, including probes into whether imports of steel and aluminium threaten U.S. national security. 

A separate probe into Chinese intellectual property practices may also conclude as early as this month, Axios reported, and could result in tariffs on the country's consumer-electronics exports.

U.S Treasuries later pared some of their losses and the 10-year yield stood at 2.555 percent in early Asian trade.

The speculation that China may reduce its buying in U.S. bonds helped to underpin the euro, the most obvious alternative assets to the dollar.

The euro traded at $1.1950, extending its rebound from Tuesday's low of $1.1916.

Against the yen, the dollar posted a even bigger fall of 1.1 percent on Wednesday, its largest decline in almost eight months.

It last stood at 111.40 yen, after hitting a six-week low of 111.27 yen the previous day.

The yen has been buoyed this week after a cut in the Bank of Japan's bond buying on Tuesday fuelled speculation that the central bank could eventually seek to exit from its stimulus later this year, following in the footsteps of other major central banks.

The Canadian dollar traded at C$1.2559 per U.S. dollar after having lost 0.7 percent on Wednesday.

Crude oil prices jumped on Wednesday and settled near three-year highs after U.S. government data showed a drop in crude inventories and production, though the fall in the latter could be the result of extreme cold temperatures across the United States.

U.S. West Texas Intermediate (WTI) crude futures traded at $63.47 per barrel, after hitting a high of $63.67 in the previous session, their loftiest level since December 2014.

Brent crude futures settled at $69.20 a barrel on Wednesday, up 38 cents. The session high for the global benchmark was $69.37, highest since May 2015.