Asian markets retreated on Thursday after a report said President Donald Trump was being investigated for possible obstruction of justice linked to a probe into alleged Russia meddling in the US elections.

Traders were spooked by the Washington Post report, which added to concerns that the tycoon's planned big-spending, tax-cutting, deregulating agenda -- which helped fuel a months-long global rally -- could founder.

The paper said senior intelligence officials have agreed to be questioned by investigators working for special counsel Robert Mueller over allegations Trump tried to get the FBI to back away from a probe into former national security adviser Michael Flynn.

Global markets took a hit last month when sacked FBI chief James Comey also said Trump had urged him to lay off Flynn. The White House has denied all the claims.

The crisis engulfing the fledgling president, and the uncertainty that has brought, has kept investors on edge for months.

On Thursday, Japan's Nikkei ended the morning session 0.4 percent down, with a strong yen also dragging on exporters. Hong Kong retreated 0.9 percent and Sydney was more than one percent off.

Investors were given a soft lead from Wall Street, where the Dow edged up to a record high but the Nasdaq and S&P 500 both slipped.

- 'Unequivocally hawkish' -

The dollar struggled to break away against the yen, even after the Federal Reserve lifted interest rates and gave a more hawkish outlook, while also unveiling plans to suck cash out of the financial system by scaling back the bonds on its balance sheet.

The US central bank said it expected to lift borrowing costs for a third time this year, brushing aside weaker inflation and consumption data in recent weeks.

Greg McKenna, chief market strategist at AxiTrader, said: "The Fed was unequivocally hawkish. As a result, the Fed signalled that it is not to be swayed from the path of raising rates and reducing the size -- tapering -- of its balance sheet.

"Another hike is expected in 2017 and possibly four more in 2018 -- as well as the balance sheet shift."

Oil prices extended losses after diving more than three percent Wednesday on data showing a smaller-than-forecast drop in US stockpiles -- signalling weak demand.

Also, the International Energy Agency said global output will increase faster than demand next year as US producers ramp up crude activity.

OPEC has also said higher US output was hurting its drive to address a supply glut.

- Key figures around 0230 GMT - 

Tokyo - Nikkei 225: DOWN 0.4 percent at 19,797.46 (break) 

Hong Kong - Hang Seng: DOWN 0.9 percent at 25,639.91

Shanghai - Composite: DOWN 0.3 percent at 3,121.17

Euro/dollar: UP at $1.1225 from $1.1220 at 2100 GMT

Pound/dollar: DOWN at $1.2756 from $1.2758

Dollar/yen: UP at 109.57 yen from 109.54 yen

Oil - West Texas Intermediate: DOWN seven cents at $44.66 per barrel

Oil - Brent North Sea: DOWN four cents at $46.96 per barrel

New York - Dow: UP 0.2 percent at 21,374.56 (close)

London - FTSE 100: DOWN 0.4 percent at 7,474.40 (close)