China's shift out of almost three years of zero-Covid has been widely welcomed but the breakneck speed at which authorities have lifted restrictions has led to an explosion of cases across the country, dealing another battering to economic activity.

However, analysts said concerns about the impact of the mass outbreak were playing off against optimism that the long-term outlook was positive as infections eventually come down and businesses restart.

Hong Kong led gainers and rose more than two percent -- building on Tuesday's big jump -- with tech firms and market heavyweight Alibaba soaring on news that Ant Group, in which it is a shareholder, was given the go-ahead to raise $1.5 billion for its consumer unit.

The news raised hopes that a long-running crackdown on the firm could be nearing an endgame, putting it closer to a possible revival of its cancelled initial public offering in Hong Kong.

Shanghai also enjoyed a second straight day of gains.

Stephen Innes at SPI Asset Management said: "With growing expectations for more back-loaded positive 'reopening impulse' in the second quarter, this could be a classic case of investors needing to wear some short-term pain for longer-term gain.

"Hence, we suspect any dips in China's stock market sentiment will be shallow."

And OANDA's Edward Moya added that, after some painful years in China's markets, there were now questions about whether they could "outperform if their Covid reopening continues without any major disruptions".

"China still has to deal with a struggling property market, but hopefully that will show signs of improving on more support measures."

There were also gains in Sydney, Seoul, Wellington and Manila, though Tokyo fell more than one percent on traders' first day back from a long weekend. Singapore, Taipei, Mumbai, Bangkok and Jakarta also fell.

Eyes on the Fed

Traders will be keeping a keen eye on the release later in the day of minutes from the Federal Reserve's December policy meeting, where they slowed their pace of interest rate hikes but signalled they would end at a higher level than expected.

The news scuttled a pre-Christmas rally across world markets, and the minutes will be pored over for clues about policymakers' plans for this month's gathering.

There is a broad consensus that the Fed's tightening measures to tame runaway inflation will tip the United States into recession, while the head of the International Monetary Fund has also warned a third of the global economy will contract this year.

Former New York Fed boss William Dudley told Bloomberg Surveillance on Tuesday: "A recession is pretty likely just because of what the Fed has to do."

However, he added that "what's different this time, I think, is that if we have a recession, it's going to be a Fed-induced recession and the Fed can end the recession by subsequently easing monetary policy".

Dudley said he did not see "a big risk of a financial-instability cataclysm that pushes the economy into a deep recession".

Crude prices were virtually flat, having been hammered more than four percent Tuesday by a range of issues including a mild European winter, a pick-up in the dollar and China's reopening uncertainty.

"Rising Chinese Covid infections could weigh on demand in the immediate term," said Warren Patterson at ING Groep. He added that the long-term outlook remained better as growth picked up.

Key figures around 0710 GMT

Tokyo - Nikkei 225: DOWN 1.5 percent at 25,716.86 (close)

Hong Kong - Hang Seng Index: UP 2.6 percent at 20,662.69

Shanghai - Composite: UP 0.2 percent at 3,123.52 (close)

Dollar/yen: DOWN at 130.76 yen from 130.92 yen on Tuesday

Euro/dollar: UP at $1.0567 from $1.0554

Pound/dollar: UP at $1.1985 from $1.1969

Euro/pound: UP at 88.16 pence from 88.15 pence

West Texas Intermediate: DOWN 0.5 at $76.57 per barrel

Brent North Sea crude: DOWN 0.4 percent at $81.79 per barrel

New York - Dow: FLAT at 33,136.37 (close)

London - FTSE 100: UP 1.4 percent at 7,554.09 (close)