Portugal Colonial - Stocks swing after latest selloff as Fed, Middle East dampen sentiment

While traders are nervously awaiting Israel's next move after Iran's missile and drone attack at the weekend, the lack of an immediate response has seen them focus on the US central bank's monetary policy plans.

A string of hotter-than-expected data on inflation and jobs in the first three months has forced investors to whittle down their bets on how many interest rate cuts the Fed will make this year.

And Powell all but confirmed that borrowing costs will likely have to remain elevated longer than previously hoped.

"The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence," he warned Tuesday in Washington.

"Given the strength of the labour market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us."

The bank's most recent "dot plot" guidance for rates suggested it will cut three times this year, with June eyed for the first.

Traders had priced in as many as six cuts at the start of the year.

But observers are now predicting just one or two at best -- starting in July or September -- with some even arguing that the next move could even be a hike if inflation refuses to come back down to the Fed's two percent target.

His remarks chime with several officials at the Fed, who have urged caution on when to begin normalising rates.

Richmond Fed chief Thomas Barkin said Tuesday that the recent run of indicators had not supported the idea of a soft landing for the economy, while Fed Vice Chair Philip Jefferson saw inflation coming down but rates remaining elevated for now owing to price pressures.

The S&P 500 and Nasdaq both fell in New York, though the Dow eked out a gain.

Asia was mixed, with Tokyo, Hong Kong and Seoul down but Shanghai, Sydney, Singapore, Wellington, Taipei and Manila rising.

"The hawkish tone from Powell didn't come as much of a surprise, considering the persistent inflationary challenges, the robust state of the US economy, and the Fed's commitment to data-driven decision-making," said Stephen Innes of SPI Asset Management.

"Anything short of reaffirming the 'higher for longer' would likely have raised even more questions about the Fed's credibility."

Traders are keeping an eye on developments in the Middle East after Israel's army chief General Herzi Halevi warned that there would be a response to Iran's barrage on Saturday, fuelling worries of a region-wide conflict.

Tehran said the attack was in retaliation for a strike on the consular annex of its Damascus embassy that killed seven Revolutionary Guards, though it said: "The matter can be deemed concluded".

While on edge for any further escalation, trading floors are relatively calm Wednesday, with oil prices edging down despite the crises in the Middle East, Ukraine and OPEC output cuts.

"Our base case is one where tensions remain contained (in the Middle East), avoiding a wider conflict that disrupts oil supply," Han Zhong Liang, of Standard Chartered, said.

- Key figures around 0250 GMT -

Tokyo - Nikkei 225: DOWN 0.2 percent at 38,404.45 (break)

Hong Kong - Hang Seng Index: DOWN 0.5 percent at 16,176.21

Shanghai - Composite: UP 1.1 percent at 3,038.92

Dollar/yen: DOWN at 154.65 yen from 154.72 yen on Tuesday

Euro/dollar: UP at $1.0634 from $1.0622

Pound/dollar: UP at $1.2439 from $1.2426

Euro/pound: UP at 85.48 pence from 85.45 pence

West Texas Intermediate: DOWN 0.5 percent at $84.90 per barrel

Brent North Sea Crude: DOWN 0.5 percent at $89.59 per barrel

New York - Dow: UP 0.2 percent at 37,798.97 (close)

London - FTSE 100: DOWN 1.8 percent at 7,820.36 (close)

R.Veloso--PC