Stocks mixed, oil extends gains as US data fuels economic worries

File picture: Asian stocks were mixed on Monday after Wall Street retreated as investors weighed weaker US economic data and shifting expectations for Federal Reserve policy.

Asian stocks were mixed Monday following a retreat on Wall Street as investors assessed fresh data that tempered expectations for a US interest rate hike but indicated weakness in the world's top economy.

Hopes that the Federal Reserve will not tighten policy next month boosted equities last week – pushing the S&P 500 and Nasdaq to records – as closely watched reports pointed to a softening labour market and inflation easing, even if it is still well above target.

The moves suggested that traders were taking the "bad news is good news" approach, but figures on Friday raised questions about the health of the economy and led observers to warn that investors should be careful what they wish for.

Retail sales fell 0.6 percent on-month in July, the worst performance in more than a year, while consumer sentiment plunged as households battered by fallout from President Donald Trump's Iran war curbed spending and raised their expectations of inflation.

Payrolls data at the start of the month "was followed by broadly in-line inflation, softer retail sales and weaker consumer sentiment", said Fawad Razaqzada at Forex.com.

"Taken together, the data suggest that US economic momentum may be losing some steam, strengthening expectations that the Federal Reserve could leave rates unchanged in September."

Traders now put the chances of a Fed hike at one in four, compared with 50:50 last week, according to Bloomberg.

Eyes will now be on the release of earnings this week from retail titans Walmart, Home Depot and Target, which could give a clearer view of consumer sentiment.

While there are growing concerns about the state of the US economy, Asian investors are taking a more positive approach for now, with tech firms again enjoying a recovery from July's selloff.

Hong Kong was lifted by tech giants Alibaba, Tencent and JD.com, while Shanghai and Taipei were also up.

Tokyo was flat, though chipmaker Kioxia gained more than five percent, while SoftBank, Advantest and Tokyo Electron added between 1.3 and two percent. There appeared little major reaction to data showing Japan's economic growth fell short of forecasts in the second quarter.

The dollar held losses against its peers after dropping on Friday in reaction to the latest data.

Oil prices extended Friday's one-percent gains with the US and Iran continuing to snipe at each other and showing no signs of reaching a deal to reopen the Strait of Hormuz.