By Susan Fenton HONG KONG (Reuters) - Asian stocks fell on Wednesday, after reaching 11-month highs earlier this week, as investors braced for more earnings reports, but rising dairy prices briefly pushed the New Zealand dollar to a 10-month high. Major European stock futures were down 0.04 percent and U.S. equity futures were indicated 0.4 percent lower as some investors took profits from equity markets' strong run-up in the past five months. Asian investors took encouragement from surprisingly strong U.S. housing data, but a sharp drop in U.S. personal income suggested recovery of the world's biggest economy, Asia's biggest export market, could be slow. A sluggish or erratic recovery could blunt further gains for markets, or push them lower. Markets in Seoul and Tokyo shrugged off news that former U.S. President Bill Clinton had secured the release of two U.S. journalists jailed by North Korea as it was unlikely to ease tensions between South Korea and its bellicose neighbour. Japan's Nikkei index dropped 1.2 percent to close at 10,253. Toyota Motor Corp faced light profit taking, falling 1.2 percent, after the world's biggest automaker cut its annual loss forecast but announced a third straight quarterly loss on Tuesday . Rival Honda Motor Co told Reuters that improving sales should return its car business to profitability in the second half but its shares fell 1.3 percent. "Investors now lack immediate trading factors, which have run their course with the earnings season almost out of the way after Toyota," said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo. "It's hard to think the Nikkei could go above 10,500 for a while." In Hong Kong and mainland China, equities were depressed by news reports that China would continue to rein in liquidity, but there were gains for Cathay Pacific, Asia's fourth-biggest airline, as it returned to profit in the first half. The MSCI index of Asia-Pacific stocks outside Japan was down 0.9 percent by early afternoon, retreating slightly after its near 80 percent gain since a rally in global equities began on March 9. EASING BIAS Falling Asian shares triggered some selling of higher-yielding currencies such as the Australian dollar in favour of the Japanese yen, which gained broadly. Upbeat U.S. housing data supported improving risk appetite, however, and kept the U.S. dollar close to 2009 lows against the euro, while U.S. Treasuries fell, pushing South Korean treasury bond futures slightly lower. Surging asset prices and tentative signs of economic recovery are now prompting many investors to consider when policymakers will begin gradually tightening accommodative monetary policy, analysts say. Australia's central bank at a policy review on Tuesday shifted to a neutral stance from an easing bias. Australia announced a smaller-than-expected trade deficit in June on Wednesday but a plunge in new vehicle sales in June and a weak services sector report sounded a warning that its economic recovery may not be strong enough to warrant an early rise in interest rates . The New Zealand dollar briefly touched a 10-month high at $0.6751 after New Zealand's Fonterra Cooperative Group, the world's top dairy exporter, reported a strong rebound in international dairy prices at its latest auction . Commodity prices were generally firm on hopes that a global economic recovery was gathering pace. Shanghai copper prices rose nearly 2 percent while oil prices edged higher again after Tuesday's retreat, with U.S. crude futures heading towards $72 a barrel after a surprise drawdown in U.S. crude inventories last week. | 
