By Julie Zhu

HONG KONG (Reuters) -Asian shares retreated on Thursday after Wall Street snapped a long winning streak, while Treasury yields were near five-month lows on hopes Britain's notably soft inflation reading would be echoed in looming U.S. price data.

The equities rally, which had been driven by falling interest rates and the Federal Reserve's dovish turn, stalled on Thursday even after U.S. economic data that beat expectations initially turned the major indexes green. A far steeper-than-expected decline in British inflation also took markets by surprise.

"Three US benchmark averages sharply retreated in the late session after hitting their respective intraday highs, snapping a more-than-one-week winning streak. This could be due to an overbought market as rate cuts optimism ran out of steam," said Tina Teng, market analyst at CMC Markets (LON:CMCX).

"Global government bond yields accelerated falling due to risk-off sentiment."

European markets were set for a lower open, with the pan-region Euro Stoxx 50 futures down 0.48%, German DAX futures dipping 0.44% and FTSE futures falling 0.57%.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3%, after U.S. stocks tumbled to close sharply lower in the previous session. The index is up 1.7% so far this month.

U.S. stock futures, the S&P 500 e-minis, were up 0.33%.

Australian shares were down 0.45%, dragged down by losses in commodity-related stocks, while Japan's Nikkei stock index slid 1.55%, slipping from near historical highs.

China's blue-chip CSI300 index rose 1.25%, rebounding from a near five-year low hit in the previous session. Foreign investors have been net buyers of Chinese shares so far on the day, following two sessions of selling.

Hong Kong shares tracked global markets lower in morning trade but the benchmark Hang Seng Index gained 0.14% in the afternoon.

On Wednesday, an abrupt mid-afternoon nosedive ended Wall Street's impressive rally.

All three major U.S. stock indexes, which were at or near record highs this week, veered lower late in the session to end 1.3% to 1.5% below Tuesday's close. The Dow Jones Industrial Average fell 1.27%, the S&P 500 lost 1.47% and the Nasdaq Composite dropped 1.5%.

In U.S. Treasuries, the yield on benchmark 10-year Treasury notes reached 3.8676% compared with its U.S. close of 3.877% on Wednesday when it fell to an almost five-month month low as government bond yields fell globally after the British inflation data.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.3705% compared with a U.S. close of 4.369%.

In currencies, the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 102.29. The greenback on Wednesday strengthened against sterling after the British inflation data fuelled speculation of rate cuts by the Bank of England.

Sterling was last trading at $1.2646, up 0.06% on the day, while the euro was up 0.1% at $1.095.

In commodities, global oil benchmark Brent hovered above $80 a barrel amid jitters over global trade disruptions and geopolitical tensions in the Middle East following attacks on ships in the Red Sea by Yemen's Iran-aligned Houthi forces.

Brent crude was last trading at $79.62 per barrel and U.S. crude dipped 0.11% to $74.14 a barrel.

Gold was slightly higher. Spot gold was traded at $2036.19 per ounce. [GOL/]