By Lisa Twaronite
TOKYO (Reuters) - Asian shares edged higher on Friday, on track for weekly gains, though sentiment was kept in check by Wall Street's weakness on concerns about the progress of U.S. tax reform.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.04 percent in early trade, poised to gain 1.2 percent for the week.
But Japan's Nikkei stock index <.N225> slipped 0.8 percent, down 1.3 percent for the week, feeling the pinch of a stronger yen even amid fresh signs the economy is gathering momentum.
Big Japanese manufacturers' business confidence improved for a fifth straight quarter in the three months to December to hit an 11-year high, the Bank of Japan's quarterly tankan survey showed.
On Thursday, U.S. retail sales increased more than expected in November and the number of Americans filing for unemployment benefits dropped to near a 44-1/2-year low last week. That pointed to sustained strength in the economy that could pave the way for further Federal Reserve interest rate hikes next year.
The Fed hiked interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration's proposed tax cuts.
"The Fed's move this week was largely perceived as a dovish hike," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.
"It was ultimately well within expectations, and I think the one surprise was how strong the upgrade was for 2018 without any corresponding upgrade for their expectations for inflation," he said. "That keeps our expectations around three rate hikes for 2018."
On Wall Street on Thursday, major U.S. stock indexes fell, with the S&P 500 <.SPX> down the most in a month, as investor worries over potential roadblocks to the Republicans' tax overhaul more than offset optimism over the strong data. [.N]
Republicans in the U.S. Congress reached a deal this week on a final version of their debt-financed legislation to cut taxes for businesses and wealthy Americans, with House and Senate votes expected early next week. But the bill has yet to get needed support of some key Senators, and investors worry about downward pressure on stocks if the bill were to fail.
The dollar index, which tracks the greenback against a basket of six rival currencies, was up 0.1 percent at 93.577 <.DXY>, down 0.3 percent for the week.
But the dollar was 0.1 percent lower against the yen at 112.28
The euro was steady at $1.1779
Sterling was steady at $1.3435
U.S. crude oil futures extended gains, after rising on Thursday as a pipeline outage in Britain continued to support prices despite forecasts showing global crude surplus in the beginning of next year. [O/R]
(Reporting by Lisa Twaronite; Editing by Sam Holmes)