Asian markets struggled Wednesday after a strong start to the year, with the virus and vaccines taking a back seat briefly as focus turned to the US state of Georgia, where two senate runoff elections could decide the fate of Joe Biden's legislative programme.

Traders have for months been juggling long-term optimism and short-term worries with hopes that inoculations will mean life can slowly get back to normal.

A surge in Covid cases globally, however, has forced several nations to reimpose lockdowns and other strict containment measures.

Having navigated the major stumbling blocks of Brexit, US stimulus and the presidential elections, eyes are now on the closely fought vote in Georgia, with the Democrats taking one senate seat and the other too close to call.

Dealers worry that a double win for the Democrats -- which would see them wrest control of the Senate and give them control of Capitol Hill for at least the next two years -- would allow Biden to push through measures such as tax hikes and market regulations.

While it would likely pave the way for a new, huge stimulus, there is also fear that would lead to higher inflation and, in turn, higher interest rates.

"A dual win should lead to a steeper (Treasury yield) curve and a weaker dollar as the fiscal situation would be seen as unsustainable," said Sebastien Galy, of Nordea Investment.

The dollar indeed weakened against most other currencies as Democrats looked to have their noses in front.

After a positive lead from Wall Street, where all three main indexes bounced back from their worst start to a year since 2016, Asian markets mostly drifted lower.

Hong Kong and Shanghai rose along with Bangkok, but Tokyo, Sydney, Seoul, Mumbai, Taipei, Wellington, Jakarta and Manila all fell.

Analysts said that while new restrictions, worrying infection spikes and stuttering vaccine distribution in some countries were jangling nerves on trading floors, dealers were keeping their sights on the second half of the year.

"Even if the US has passed peak vaccine rollout, euphoria and dreams of the efficient distribution are now replaced with the unfortunate logistical rollout reality," said Axi strategist Stephen Innes.

"Markets will remain focused on the end of the tunnel, regardless of its length."

Oil prices extended gains after soaring nearly five percent Tuesday on news that Saudi Arabia had offered to cut output by a million barrels in both February and March. The announcement sent WTI above $50 for the first time in 11 months.

The move soothed worries about global demand with new lockdowns, which could last months in some countries, likely to stunt travel again.

Tokyo - Nikkei 225: DOWN 0.4 percent at 27,055.94 (close)

Hong Kong - Hang Seng: UP 0.1 percent at 27,665.04

Shanghai - Composite: UP 0.6 percent at 3,550.88 (close)

Euro/dollar: DOWN at $1.2319 from $1.2294

Dollar/yen: UP at 102.73 yen from 102.72 yen

Pound/dollar: UP at $1.3631 from $1.3622 at 2150 GMT

Euro/pound: UP at 90.39 pence from 90.23 pence

West Texas Intermediate: UP 0.3 percent at $50.06 per barrel

Brent North Sea crude: UP 0.6 percent at $53.92 per barrel

New York - Dow: UP 0.6 percent at 30,391.60 (close)

London - FTSE 100: UP 0.6 percent at 6,612.25 (close)

dan/fox

NORDEA BANK