The dollar sank Thursday after the Federal Reserve indicated it would take a slow, measured approach to any interest rate hikes, while Tokyo led most Asian markets lower on worries over the size of the Bank of Japan's expected stimulus.

After a closely watched meeting the Fed held borrowing costs but noted the world's top economy had improved and expressed less fear about the impact of Britain's vote to leave the European Union last month.

The meeting followed a string of positive readings -- particularly on jobs growth and key consumer spending -- that has fanned speculation of a tightening in monetary policy despite weakness in most other global economies.

"There is a lot of data between now and the mid-September policy meeting, so more evidence of solid growth and rising inflation could lead the Fed to act," Richard Jerram, chief economist at Bank of Singapore, said in a note.

"However, they tend to err on the side of caution so we think it is more likely that they wait until December."

The Dow and S&P 500 ended slightly lower, while in Asia the dollar retreated against most other currencies.

The greenback fell to 104.75 yen from 105.31 yen in New York. The euro rose to $1.1091 from $1.1062, and well up from $1.0989 seen earlier Wednesday in Asia.

- 'Bar too high' -

Higher-yielding currencies also made inroads against the US unit, with the Australian dollar putting on 0.7 percent and South Korea's won 0.9 percent, while the under-pressure Turkish lira climbed 0.8 percent. Malaysia's ringgit added 0.7 percent and the Indonesian rupiah was 0.2 percent higher.

The strong yen sent Japan's Nikkei tumbling as the country's central bank began its own two-day policy meeting. Traders are worried the bank will not deliver Friday a big enough stimulus to kickstart the world's number three economy.

The Japanese government's announcement Wednesday of a 28 trillion yen stimulus -- without releasing details -- was unable to provide much excitement in Tokyo, where the Nikkei index ended 1.1 percent lower.

Elsewhere, Hong Kong slipped 0.2 percent by the close and Singapore was 0.9 percent off in the afternoon while Seoul ended down 0.2 percent and Manila dived 1.4 percent. Sydney, however, added 0.3 percent, while Shanghai edged up 0.1 percent after suffering a hefty loss Wednesday.

"Investors are wary that the BoJ will disappoint and it'll lead to a bout of selling," Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management, told Bloomberg News.

"The bar has already been raised too high for the BoJ's policies. Unless there's some sort of policy that crosses that line... Japanese stocks will be sold and the yen will be bought."

In early European trade London fell 0.1 percent, Frankfurt was 0.2 percent lower and Paris added 0.2 percent.

- Key figures at 0800 GMT -

Tokyo - Nikkei 225: DOWN 1.1 percent at 16,476.84 (close)

Hong Kong - Hang Seng: DOWN 0.2 percent at 22,174.34 (close)

Shanghai - Composite: UP 0.1 percent at 2,994.32 (close)

London - FTSE 100: DOWN 0.1 percent at 6,745.90

Euro/dollar: UP at $1.1091 from $1.1062

Pound/dollar: DOWN at $1.3190 from $1.3224

Dollar/yen: DOWN at 104.75 yen from 105.31 yen

New York - DOW: DOWN less than 0.1 percent at 18,472.17 (close)

Source: AFP