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Asian shares retreated Friday after strong reports on the U.S. economy raised the possibility of interest rates staying painfully high.

U.S. futures edged higher and oil prices also rose

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Japan’s Nikkei 225 index lost 1.2% to 38,646.11 and the Hang Seng in Hong Kong fell 1.5% to 18,589.89.

South Korea’s Kospi declined 1.2% to 2,688.60, while in Australia, the S&P/ASX 200 shed 1% to 7,734.30.

Taiwan’s Taiex slipped 0.2% after hitting a record high on Thursday.

On Thursday, most U.S. stocks slumped, in the latest example of how good news for the economy can be bad for Wall Street, when strong economic reports fueled concern that the Federal Reserve might keep interest rates high to ensure there is a lid on inflation. The weakness was widespread and overshadowed another blowout profit report from market heavyweight Nvidia.

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The S&P 500 fell 0.7% to 5,267.84 in its sharpest drop since Apri. The Dow Jones Industrial Average dropped 1.5% t 39,065.26, and the Nasdaq composite slipped 0.4% to 16,736.03.

Treasury yields cranked up the pressure following the stronger-than-expected reports on the U.S. economy, which forced traders to rethink bets about when the Federal Reserve could offer relief to financial markets through lower interest rates.

One report suggested growth in U.S. business activity is running at its fastest rate in more than two years. S&P Global said its preliminary data showed growth improved for businesses not only in the services sector but also in manufacturing.

A separate report showed the U.S. job market remains solid despite high interest rates. Fewer workers applied for unemployment benefits last week than economists expected, an indication that layoffs remain low.

The Fed is trying to pull off the difficult feat of slowing the economy enough through high rates to get inflation back to 2% but not so much that it forces a painful recession. It’s been holding its main interest rate at the highest level in more than two decades to do so, and Wall Street is itching for some easing.

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Traders already have ratcheted back their earlier, too-optimistic forecasts. Hopes are still high for at least one cut to rates this year.

The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, rose to 4.47% from 4.43% late Wednesday. The two-year yield, which more closely tracks expectations for action by the Federal Reserve, climbed to 4.93% from 4.87%.

The sharpest single drop within the S&P 500 came from Live Nation Entertainment, which tumbled 7.8% after the Justice Department accused it and its Ticketmaster business of running an illegal monopoly over live events in the country.

VF Corp., the company behind The North Face, Vans, Timberland and other brands, fell 2.9% after reporting a loss for the latest quarter, along with weaker revenue than analysts expected.

They helped to more than offset a 9.3% leap for Nvidia, which delivered its latest knockout profit report late on Wednesday. Its revenue surged 262% in the latest quarter from a year earlier, and its profit leaped an eye-popping 629%. The company’s chips are helping to train artificial-intelligence systems, and demand for them has been voracious.

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Nvidia also increased its dividend as its CEO, Jensen Huang, touted how “the next industrial revolution has begun.”

Concern has grown that Wall Street’s frenzy around the potential for AI has created a bubble where prices have soared too high and expectations have grown too tough. But Nvidia’s continued skyrocketing growth tamped down some of the criticism.

In other trading, U.S. benchmark crude oil added 10 cents to $76.97 per barrel in electronic trading on the New York Mercantile Exchange. It gained 30 cents on Thursday.

Brent crude, the international standard, was up 14 cents at $81.50 per barrel.

The U.S. dollar rose to 157.06 Japanese yen, up from 156.96. The euro fell to $1.813 from $1.0817.

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AP Business Writer Stan Choe contributed.

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