Asian shares slipped on Friday, but recovered some early losses, while the dollar was steady after U.S. data raised fears that a global economic recovery could lose momentum.

European shares, however, were expected to bounce back from the previous session’s sharp drop, while U.S. equity futures were flat.

The dollar .DXY held firm against a basket of major currencies as some investors shifted back to safer assets despite extremely low yields, while hedge funds were reported to be taking profits ahead of closing their books for the year-end.

Investors were unnerved by a report showing that a record one in seven U.S. mortgages were in foreclosure or at least one payment past due in the third quarter, signaling a recovery in the U.S. housing market will be tepid at best.

“Hedge funds are cashing out their positions to prepare for year-end redemption requests from the clients. And that move is encouraging others to take profits as well,” the head of a trading desk at a big Japanese Bank in Tokyo said.

Tech shares suffered some of the heaviest losses after a U.S. brokerage downgrade of the semiconductor industry, which helped send the S&P index .SPX down 1.3 percent overnight. The tech sector has been one of the leaders in a strong global equities rally that has extended into its ninth month. .N

Japan’s Nikkei index .N225 slid 0.5 percent, marking a fourth straight week of losses and its longest negative run in more than a year, as the government announced the world’s second-largest economy was back in deflation.

The yen, like the dollar, benefited from demand for safer assets, adding pressure on shares of Japanese exporters. They included electronics giant Sony Corp (6758.T), which slid 2.4 percent to a near four-month low on doubts the company’s new business strategy could deliver strong profit growth.

The msci index of asia Pacific stocks traded outside Japan .MIAPJ0000PUS and the Thomson Reuters index of regional shares .TRXFLDAXPU both slipped 0.5 percent, though the asia ex-Japan index remains up about 65 percent in the year to date.

In Taiwan, the world’s biggest contract chipmaker TSMC (2330.TW), which sells the bulk of its chips to North America, fell 2 percent.

“Unless Christmas sales (of technology products) are very good, we don’t think the market can rebound significantly,” said Alex Huang, director of Mega International Securities in Taipei.

RECORD FUND INFLOWS

While some market watchers fear share prices have run up too far ahead of economic fundamentals, other analysts say the retreat from equities may only be temporary as excess global liquidity will continue to encourage fund inflows into asia.

The region’s economies are showing signs of rebounding from the global financial crisis far faster than the United States, the uk and europe, where consumer sentiment remains fragile.

In hong kong — which has attracted record fund inflows of more than $70 billion since October last year — central Bank chief Norman Chan warned that rapid inflows posed a dilemma for policymakers across asia as they raise the risk of potentially destabilizing asset bubbles.

Even if economies in the region raised interest rates, that could make dollar carry trades even more active and aggravate fund inflows, Chan said.

Carry trades involve borrowing money in a low-yielding currency and using the funds to invest in other assets which potentially offer far higher returns.

Fund house Franklin Templeton, meanwhile, told Reuters that sovereign wealth funds are investing more in property and commodities to hedge against rising inflation risks stemming from massive fiscal and monetary stimulus around the world.

Asian currencies also suffered on Friday as investors retreated from riskier assets, sending the Korean won to a three-week low at one point at 1,164.2 to the dollar.

Japanese government bond futures hit a fresh seven-week high as the stock market sagged and were also buoyed by stronger U.S. Treasuries.

Crude oil futures gained 0.5 percent to $77.87 a barrel after losing more than 2 percent in New York on fears that lackluster economic growth would limit energy demand.

Gold was flat at $1,144.40 an ounce as the dollar gained ground, retreating after hitting another record at $1,152.75 an ounce earlier this week.