Asia stocks rose today, encouraged by a rally on Wall Street, but gains were kept in check by worries that aggressive central bank policy tightening will stifle global growth and raise the risks of stagflation.

The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia's invasion of Ukraine has compounded the damage from the Covid-19 pandemic, and many countries now faced recession.

Nevertheless, US stocks rallied to end higher for a second straight day, buoying the mood in Asia.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9%, narrowing from morning gains but recouping most of its losses in the previous session, while Japan's Nikkei index was up 0.8%.

Japan's economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient and companies rebuilt inventories.

Gross domestic product in the world's third-biggest economy contracted by 0.1%, beating median market expectations for a 0.3% drop.

Australia's S&P index rose 0.37%, recovering part of its slide on Tuesday after the central bank unexpectedly raised interest rates by the most in 22 years and flagged more tightening to come.

Elsewhere, the Reserve Bank of India's (RBI) key interest rate was raised by 50 basis points on Wednesday, as widely expected, in the second hike in as many months.

"Upside risks to inflation as highlighted in last policy meetings have materialised earlier than expected," RBI Governor Shaktikanta Das said after the policy decision.

On Thursday, the European Central Bank meets and markets are expecting it to at least lay the groundwork for rapid rate rises, if not begin them with a small hike.

"I think the hikes coming from the central banks, or the front-loading is actually positive because it will allow us to kind of curb inflationary pressures," said Trinh Nguyen, senior economist at Natixis in Hong Kong, adding markets could be correcting from Tuesday's "over-reaction".

"But I wouldn't say that it's an reversal, unless a change of data will tell us otherwise," Nguyen said.

US Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and the Biden administration would likely increase the 4.7% inflation forecast for this year in its budget proposal.

Chinese stocks pared back earlier gains in morning trading and dipped 0.03%. Investors remain cautious about the outlook of the economy which is slowly getting back on track as strict Covid lockdowns are relaxed.

"It certainly feels like the tide is turning on the mainland, though the overall tone still leans more cautiously optimistic, with key emphasis on 'cautiously'," Stephen Innes, managing partner at SPI Asset Management said in a note.

Meanwhile shares in Hong Kong were supported by regulatory easing of Beijing, with tech companies advancing on policy relaxations. The Hang Seng Index recorded a 2% hike, with Hang Seng Tech Index rising 4%.

Hong Kong share of Bilibili jumped more than 10% on Wednesday to lead gains in gaming stocks, as China's gaming regulator on Tuesday granted publishing licenses for 60 games.

E-mini futures for the S&P 500 fell 0.3%, while the pan-region Euro Stoxx 50 futures were up 0.5%.

In currencies, the yen hit a fresh 20-year low versus the dollar at 133 and slipped to a seven-year trough against the euro as traders awaited the ECB meeting, which is likely to leave Japan alone among its major peers in sticking to ultra easy monetary policy.

The US Federal Reserve is expected to raise its benchmark funds rate by 50 basis points next week and again in July.

The US benchmark 10-year yield was 3.003%, having edged down from a four week high of 3.064% on Tuesday after Target warned about excess inventory and said it would cut prices, offering some relief to those who think inflation may be peaking.

Oil prices rose on Wednesday, with investors expecting a report of low US oil stocks, while estimates of solid demand in the upcoming driving season also lent support.

Brent crude futures for August had risen 59 cents, or 0.48%, to $121.15 a barrel by 0533 GMT after closing on Tuesday at the highest since May 31.

US West Texas Intermediate crude for July was at $120.09 a barrel, up 66 cents, or 0.55%, after reaching its highest settlement since March 8 in the previous session.

Spot gold was down 0.23% at $1,847.64 per ounce.