Markets were mixed in Asia on Thursday as investors put the brakes on a recent rally that has some worried valuations may have run a little too high.

The underwhelming performance followed a tepid lead from Wall Street, where only the Dow managed to eke out a gain despite blowout profits at top banks that gave a healthy start to the much-anticipated earnings season.

Observers also said the Chinese central bank's moves to keep a lid on liquidity in the financial system as it tries to control debt issuance showed Beijing was happy enough with its recovery that it was pulling back on last year's stimulus measures.

"The expectation in the market is that the central bank will gradually tighten its liquidity as it seeks policy normalisation after the pandemic," Zhang Gang, of Central China Securities, said.

After hitting a series of records or multi-year highs in recent months, world markets are struggling to push any higher without any new major catalysts, with the latest round of corporate reporting now the main focus.

Traders are also keeping an eye on developments in the pandemic crisis as infections in some countries rise and after vaccine programmes were dealt a blow by blood clot concerns over the Johnson & Johnson jab as well as that from AstraZeneca.

Shanghai, Hong Kong, Jakarta, and Wellington were all down while Tokyo, Sydney, Seoul, Singapore, Taipei, and Manila rose. London, Paris, and Frankfurt were all up in early trade.

But Patrik Schowitz at JP Morgan Asset Management warned he was less upbeat about regional equities, which he said were dominated by growth and tech firms. Those sectors have come under pressure of late owing to expectations that interest rates will rise as the world economy rebounds.

Tug-of-war

"In addition to that, the biggest economy in the region is expected to see more policy normalisation: China has now recovered enough that policymakers can afford to be more conservative and worry more about containing debt and property market risks," he said.

Read More: Asian markets retreat as traders await earnings season

"That will be a headwind to China equities, despite the solid economy."

He added that fears over inflation continued to be a big risk for markets, as investors bet that the explosion of economic activity fanned by vaccines, reopenings, and stimulus measures -- particularly in the United States -- would force central banks to wind in their ultra-supportive monetary policies.

And Adam Phillips, of EP Wealth Advisors, said: "You're going to see this tug-of-war continue within markets as investors weigh the prospects of a strengthening economy with the risk of rising inflationary pressures."

Federal Reserve boss Jerome Powell again repeated the bank's pledge to stay fast on its policies until it is happy inflation is running high for some time and unemployment is tamed.

Observers pointed out that he did suggest the Fed would wind down other easing policies, including its bond-buying program, before lifting interest rates.

Oil prices edged down a day after enjoying strong gains on the back of a forecast-beating drawdown in US stockpiles and an upbeat outlook from the International Energy Agency.

Axi's Stephen Innes was bullish about the outlook for the crude market, saying in a note: "With airports getting busy and more and more planes in the sky again, it suggests the oil demand is getting closer to taking the next giant recovery step."

Read More: Asian markets mostly rise after forecast-busting US jobs data