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TOKYO: Asian shares were mixed Friday, as Chinese shares sank after leaders acknowledged the official 5.5 percent growth target for this year won’t be met.

Investors appear to have grown more convinced that the Federal Reserve may temper its aggressive interest rate hikes aimed at taming inflation after the Commerce Department reported the US economy contracted at a 0.9 percent annual pace in the last quarter.

That followed a 1.6 percent year-on-year drop in the first quarter.

Investors were also cautiously eyeing regional tensions over China’s stance on Taiwan after President Joe Biden and China’s Xi Jinping spoke for more than two hours on Thursday.

China left no doubt it blames the US for a deteriorating relationship, but the White House said call’s aim was to “responsibly manage our differences and work together where our interests align.”

Hong Kong’s Hang Seng index dropped 2.4 percent to 20,123.55 and the Shanghai Composite index declined 1 percent to 3,250.64 after China’s leaders acknowledged the struggling economy won’t hit its official 5.5 percent growth target this year.

The announcement after a planning meeting of the ruling Communist Party said Thursday that Beijing will try to prop up sagging consumer demand but will stick to strict anti-COVID-19 tactics that have disrupted manufacturing and trade.

It underscores the high cost Xi’s government is willing to incur to stop the virus in a politically sensitive year when he is widely expected to try to extend his term in power.

Japan’s benchmark Nikkei 225 lost 0.2 percent to 27,801.64, while Australia’s S&P/ASX 200 gained 1.0 percent to 6,945.20. South Korea’s Kospi added 0.7 percent to 2,451.50.

Japanese government data showed factory output in June jumped 8.9 percent from the previous month, marking the first rise in three months. The recent easing of pandemic lockdowns in China has helped boost Japanese production.

“On the economic data front, easing China’s restrictions also drove a stronger-than-expected June output for Japan, with China’s reopening potentially having a positive knock-on impact across the region as well into the second half of the year,” said Yeap Jun Rong, market strategist at IG in Singapore.

A surge in COVID-19 infections to record levels in many parts of Japan has raised concern. But Robert Carnell, regional head of research Asia-Pacific at ING believes that Japan’s second quarter GDP, or gross domestic product, will rebound marginally from the first quarter’s contraction.

On Thursday, the S&P 500 rose 1.2 percent to 4,072.43, while the Dow added 1 percent to close at 32,529.63. The Nasdaq gained 1.1 percent to 12,162.59. The Russell 2000 rose 1.3 percent to 1,873.03.

Consecutive quarters of falling GDP are an informal, though not definitive, indicator of what economists call a technical recession.

The GDP report signaled weakness across the economy. Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves, shedding 2 percentage points from GDP.

The Federal Reserve has made slowing the US economy to tame the highest inflation in 40 years its goal by raising interest rates, most recently on Wednesday. The latest GDP report, along with other recent weak economic data, could be giving some investors confidence that the central bank will be able to ease up on the size of any further rate hikes.

The central bank raised its key short-term interest rate by 0.75 percentage points on Wednesday, lifting it to the highest level since 2018. The move sparked a broad market rally led by technology stocks that helped give the Nasdaq its biggest gain in over two years. The major indexes are now all on pace for a weekly gain, extending Wall Street’s strong July rally.

In a busy week of corporate earnings reports investors have focused on what companies are saying about inflation and the impact rising interest rates are having on their business and customers.

Spirit Airlines shares rose 5.6 percent after JetBlue said it agreed to buy the budget airline for $3.8 billion to create the nation’s fifth largest airline. A day earlier, Spirit’s attempt to merge with Frontier Airlines fell apart. Frontier Airlines vaulted 20.5 percent.

In energy trading, benchmark US crude gained 40 cents to $96.82 a barrel in electronic trading on the New York Mercantile Exchange. It lost 84 cents to $96.42 on Thursday.

Brent crude, the international pricing standard, gained 36 cents to $102.19 a barrel.

In currency trading, the US dollar fell to 132.67 Japanese yen from 134.27 yen late Thursday. The euro cost $1.0247, up from $1.0199.