Asian shares recover on China services growth

Most Asian markets recovered from early losses to trade higher after a private gauge of activity in China's services sector hit an 11-month high.

The Caixin/Markit China Services Business Activity Index jumped to 53.8 in July from 51.8 in the previous month. A score above 50 indicates expansion.

The Nikkei benchmark index rose 0.7% to 20,664.53 points after opening lower.

Shares in Toyota were down 2.1% at mid-day despite the company posting a 10% increase in profits for the first quarter of the fiscal year.

Fed rate hike

Earlier, investor sentiment was muted after Atlanta Federal Reserve President Dennis Lockhart strongly hinted at an interest rate increase by the US central bank in September.

"I think there is a high bar right now to not acting, speaking for myself," Lockhart told the Wall Street Journal.

The hawkish comments sent Wall Street into negative territory, where the Dow Jones, S&P 500 and Nasdaq indices all closed down.

"Given that Lockhart is middle-of-the-road to slightly dovish, these comments from him really add a lot of weight to the notion that the Fed really wants to go in September," analysts at Citi were quoted as saying by Reuters.

Yuan review

Hong Kong shares were up, with the Hang Seng index rising 0.3% to 24,472.48.

In mainland China, the Shanghai Composite index was down by 1.3% at 3,708.66 points, while South Korea's Kospi was flat at 2,028.21.

Meanwhile, the International Monetary Fund (IMF) said it was considering maintaining its benchmark currency basket until September 2016 amid pressure from China to add the yuan to its Special Drawing Rights (SDRs).

The basket currently includes the US dollar, the euro, the pound sterling and the Japanese yen.

The yuan met the criteria of being a major currency of international trade but it also had to meet the IMF's "freely usable" criterion to be included in the SDRs, the Washington-based lender noted.

Elsewhere, Australian shares fell, with the S&P/ASX 200 sliding 0.5% to 5,670.80.