* Asia shares fall, regional factors overshadow record Dow
* Nikkei bucks trend, inches up 0.2 pct
* Dollar index near 7-mth highs hit after solid retail data
* South Korea and New Zealand keep rates steady
Asian shares fell on Thursday with regional factors outweighing positive sentiment from another record Wall Street close after strong U.S. retail sales sustained an optimistic growth outlook, while the dollar index stayed near seven-month highs.
The MSCI's broadest index of Asia-Pacific shares outside Japan extended early losses to fall 0.6 percent by midmorning, led lower by the materials sector which slid 1.3 percent.
Resources-reliant Australian shares slumped 1 percent, hit by weaker commodity prices and fading expectations for an interest rate cut.
Hong Kong shares fell 0.7 percent, after losing the last of their 2013 gains on Wednesday. Property developers retreated after two of the territory's leading banks raised mortgage rates for the first time since 2011. Shanghai shares eased 0.1 percent.
Japan's Nikkei stock average bucked the regional downtrend to rise 0.4 percent.
Net inflows into the Japanese mutual fund market hit $11 billion in February, the largest monthly inflows in almost six years as rallies in domestic shares the last four months encouraged investors to direct new money into the fund market.
Asia is seeing some breakdown in correlation with overseas markets and regional bourses are being driven more by local factors, said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong.
"In the region, the focus rather is whether China would tighten more aggressively, political risks regarding North Korea or the response of policymakers in terms of currencies. Regional factors are gaining more importance," she said.
POLICY IN FOCUS
Monetary policy direction remains diverse in the region, with some central banks in easing mode while others remain watchful of inflation. The dollar's strength, which is capping gains for Asian currencies, also be tempering Asian reaction to the solid U.S. economy.
South Korea's central bank held interest rates steady at 2.75 percent for a fifth straight month, in line with market expectations, as it evaluated economic conditions overseas and heightened tensions with North Korea. South Korean shares fell 0.9 percent.
"Expectations for government stimulus have turned into disappointment after today's rate decision," said Oh Hyun-seok, a market analyst at Samsung Securities.
"Domestic consumption is weak, but the Bank of Korea is missing out on opportunities to cut rates."
The Australian dollar jumped to a five-week high of $1.0383 after data showed the country's employment topped estimates and soared by 71,500 in February, the biggest increase in over a decade, almost ruling out any cut in interest rates before the middle of the year.
In New Zealand, the central bank held its key interest rate at a record low 2.5 percent for a 16th straight meeting, while suggesting that in some circumstances a cut might be possible.
The U.S. government reported retail sales grew 1.1 percent in February, the fastest rise since September, lifting the dollar index to 83.055 on Wednesday, its highest since Aug. 3.
The blue chip Dow Jones industrial average marked the index's longest consecutive winning streak since November 1996 with a record closing high on Wednesday, a ninth straight session of all-time highs.
The dollar was trading at 95.83 yen, below Tuesday's high of 96.71 yen, its peak since August 2009.
The euro was at 124.22 yen, retreating from a one-month high of 126.03 reached on Tuesday.
European shares recouped their earlier losses to end flat near 4-1/2-year highs on Wednesday, but the euro took the brunt of the strengthening dollar on a brighter economic outlook in the United States than for the euro zone.
The euro was at $1.2964, after falling to a three-month low of $1.2923 on Wednesday, also weighed by a lukewarm bond auction in Italy.
Italy sold 5.32 billion euros of new three- and 15-year government bonds, paying the highest yield since last December for the shorter-term debt, in its first bond auction since Fitch cut the country's credit rating on Rome's inconclusive elections last month.
Investors will turn to a Spanish bond auction scheduled later in the day, with Madrid offering debt maturing in 2029, 2040 and 2041.
Crude oil eased 0.2 percent to $92.35 a barrel while Brent eased 0.2 percent to $108.32.