TOKYO, July 25 — Asian stocks lost ground on Monday, retreating from over three-week highs as worries about a global economic downturn sapped investors’ risk appetite.

Bond yields eased amid bets that an expected US recession would slow the Federal Reserve’s aggressive tightening campaign, with markets looking for policy clues from its two-day Federal Open Market Committee meeting which begins on Tuesday.

At the same time, the dollar built on its recovery from a 2-1/2-week low against major peers, supported by demand for the US currency as a safe haven.

"Risk markets are obviously priced for some kind of slowdown, but are they priced for an outright recession? I would argue no,” said Ray Attrill, head of currency strategy at National Australia Bank.

"In that sense, it’s hard to say we’ve reached a bottom as far as risk sentiment is concerned.” Japan’s Nikkei .N225 retreated 0.75 per cent, while Chinese blue chips .CSI300 lost 0.82 per cent.

Hong Kong’s Hang Seng .HSI slid 0.75 per cent, with its tech index .HSTECH tumbling 1.96 per cent.

MSCI’s broadest index of Asia-Pacific shares .MIAP00000PUS lost 0.54 per cent to 158.80, after touching the highest since June 29 at 160.03 on Friday.

US S&P 500 emini futures EXcv1 slipped 0.08 per cent, pointing to an extension of the benchmark’s .SPX 0.93 per cent slump on Friday, when a survey showed business activity contracting for the first time in nearly two years amid persistently heated inflation and rapidly rising interest rates.

Earlier that day, data also showed euro zone business activity unexpectedly shrank.

Nasdaq futures NQc1 were about flat, following a 1.77 per cent tumble for the tech-heavy stock index, as the bottom dropped out from under Snap Inc SNAP.N after the Snapchat owner posted its weakest-ever sales growth. .N Investors are on guard this week for how much a strong dollar will hurt financial results from heavyweights Apple AAPL.O and Microsoft MSFT.O, among others.

In Europe, EURO STOXX 50 index futures STXEc1 pointed 0.61 per cent lower, and FTSE futures FFIc1 slid 0.52 per cent.

The dollar index — which measures the safe-haven currency against six major peers - was little changed at 106.64, after climbing off a 2-1/2-week low of 106.10 reached Friday.

The greenback added 0.11 per cent to 136.235 yen JPY=EBS, while the euro EUR=EBS slipped 0.04 per cent to US$1.02075.

The 10-year US Treasury yield US10YT=RR was little changed at 2.785 per cent after sliding from as high as 3.083 per cent over the previous two sessions.

Equivalent Japanese government bond yields JP10YTN=JBTC dropped to the lowest since March 10 at 0.18 per cent, and Australian yields AU10YT=RR dipped to the lowest since May 31 at 3.285 per cent.

The Fed concludes a two-day meeting on Wednesday and markets are priced for a 75 basis-point rate hike, with about a 9 per cent chance of a full one percentage-point increase. FEDWATCH Crude oil fell on concern that higher US rates would limit fuel demand growth.

Brent crude LCOc1 futures for September settlement dropped 48 cents, or 0.5 per cent, to US$102.72 a barrel and US West Texas Intermediate (WTI) crude CLc1 futures for September delivery fell 65 cents, or 0.7 per cent, to US$94.05 a barrel, both down for a fourth day.

Gold XAU= was steady at US$1,725.17 per ounce, getting support from lower bond yields.

Bullion could push through resistance at around US$1,770 if the Fed delivers a "dovish hike” on Wednesday, meaning forward guidance for a slowing in the pace of hikes for the remainder of the year, Chris Weston, head of research at brokerage Pepperstone, wrote in a client note.

"The yellow rock works in this backdrop where traders are questioning if the USD is our default hedge against equity drawdown,” Weston said.

"I am warming to gold.” — Reuters