By Hideyuki Sano
TOKYO (Reuters) - Asian shares mostly rose while the dollar held firm on Thursday after strong service-sector data and comments from a Fed policymaker boosted optimism about the United State economy and fanned expectations of a U.S. rate hike in September.
Japan's Nikkei <.N225> rose 0.9 percent while South Korea's Kospi gained 0.3 percent.
Dollar-denominated MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was off 0.1 percent due to the dollar's strength and falls in Australian shares.
Overnight, Wall Street shares mostly edged higher, helped by data showing the July pace of growth in the U.S. service sector surged to a decade high and by solid corporate results in Europe.
The U.S. Institute for Supply Management's services sector index rose to 60.3, its highest level since August 2005, far beyond expectations for a 56.2 reading.
The data backed views the Federal Reserve will raise rates in September, more than offsetting weaker-than-expected U.S. private hiring figures for July also released on Wednesday.
Atlanta Fed chief Dennis Lockhart, a voting member at the U.S. central bank's policy meeting this year, also said it would take "significant deterioration" in the U.S. economy for him to not support a rate hike in September.
"Lockhart is not a policy hawk. He is always right at the middle of the road in the policy board," said Tomoaki Shishido, fixed income analyst at Nomura Securities. "As far as I remember, his cue on the Fed's policy in the past has proved almost always right."
In light of Lockhart's comments, U.S. employment data due on Friday may do little to change the perception unless it misses market expectations by a huge margin.
The dollar's three-month overnight indexed swap rate <USD3MOIS=> hit its highest level since 2010 on Wednesday.
The specter of higher U.S. interest rates benefited the dollar against other currencies, lifting the dollar's index against a basket of six major currencies hit 3 1/2-month high of 98.218 <.DXY> <=USD>. The index last stood at 97.880.
Against the yen, the U.S. currency cleared a strong resistance around 124.50 to hit a two-month peak of 125.015 <JPY=> on Wednesday. It last stood at 124.80.
The euro also slipped to two-week low of $1.0847 on Wednesday before bouncing back a tad to $1.0902.
"Markets started to price in the chance of a rate hike in September," said Minori Uchida, chief currency strategist at the Bank of Mitsubishi-Tokyo UFJ.
"The focus for now would be how risk assets such as emerging currencies and stocks will cope with the prospects of a U.S. rate hike," he added.
Investors are worried that weaning off decade-long zero interest rates on the dollar could prove tough for some emerging economies and companies that have taken cheap dollar funding for granted.
The Brazilian real <BRL=> hit a 12-year low and the South African rand <ZAR=> hit a 14-year low on Wednesday. In Asia, the Indonesian rupiah <IDR=> and the Malaysian ringgit <MYR=> flirted with the lowest levels since the Asian economic crisis in the late 1990s.
On the other hand, few investors seemed worried about U.S. share moves.
U.S. shares' volatility index <.VIX>, seen as investors' fear gauge, briefly fell below 11 percent, its lowest level in more than a year.
Elsewhere, oil prices dropped to fresh low in recent months after a surge in gasoline stockpiles in the United States
Brent futures <LCOc1>, the global oil benchmark, hit a six-month bottom of $49.02 per barrel, its lowest since late January.
(Editing by Richard Borsuk)