Asian markets were mixed Wednesday as traders tried to ascertain how big an expected Federal Reserve interest rate cut would be later in the day, while the dollar held gains against the yen after forecast-beating US data.

While the US central bank is widely expected to cut borrowing costs for the first time since the start of the pandemic, the big question is whether officials will go for a bumper move before a series of smaller ones into the new year.

The prospect of easier financial conditions has helped push markets higher this year, with several major indexes hitting multiple records, but observers warned that with prices elevated and a period of cuts baked in, equities could be in for a period of volatility.

Wall Street had a tepid day, with many investors keeping their powder dry until the Fed's decision and boss Jerome Powell's post-meeting statement later on Wednesday.

Market watchers have said the Fed has a tough balancing act, warning that a big cut could signal the bank is worried about the economy, while a smaller one might suggest it is behind the curve on easing policy.

"Our economists have made the case for a 25-basis-point cut, noting that while the labour market evolution could readily support a 50 basis point move to kick off the long-awaited cutting cycle... officials have not made that case, and the data is not emphatic enough to force their hand," said National Australia Bank's Rodrigo Catril. 

"Yet media reports from well connected journalists over the weekend have made the point that a discussion for a 50-point cut was very much alive."

He said traders now saw a 70 percent chance of a 50-point cut, adding that "when pricing expectations are this high, it is very rare for the (policy board) to disappoint".

Still, Asian markets were mixed.

Tokyo rose as a weaker yen helped exporters. The Nikkei 225 had fallen more than one percent the previous day as the currency sat around highs not seen since summer 2023.

Shanghai advanced as investors returned from a four-day weekend, while Mumbai and Bangkok also gained. But Singapore, Taipei, Jakarta, Wellington, Manila and Taipei fell, with Sydney flat.

Hong Kong and Seoul were closed for holidays.

London edged down as data showed UK inflation held stable at 2.2 percent last month, with eyes on a Bank of England policy decision on Thursday. 

Paris and Frankfurt both opened flat.

The yen's drop came after data from the US Commerce Department reported that consumer spending cooled in August but not as much as expected, suggesting the world's top economy remained in good health.

The reading also helped temper lingering worries that the country was in danger of slipping into recession, which had been stoked in the past two months by big misses on jobs creation.

After the Fed's day in the spotlight, focus will turn to the Bank of Japan as it prepares for its own policy announcement on Friday, when it is widely expected to stand pat, having hiked twice this year -- the first in 17 years.