Stocks in many Asian markets were sluggish Wednesday, following a big rally led by Hong Kong the day before.

The Hang Seng rose 152 points, or 0.7%, to 22,617.01, but China's Shanghai Composite Index lost 23 points, or 0.6%, to 3606.86. In Japan, the Nikkei fell 38 points, or 0.3%, to 12,706.63, as exporters such as Canon ( CAJ - Get Report) declined on concerns of falling profits in the face of the stronger Japanese currency and troubling U.S. consumer data.

"Asia is going to see profit-taking from the overextended rally yesterday. The news flow is light," says Martin Marnick, a director at Helmsman Global Trading in Hong Kong. "Short sellers dropped to just 5% of the total volume Tuesday."

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In Hong Kong, stronger earnings in the fiscal year 2007 for Industrial & Commercial Bank of China ( IDCBF) and a much stronger-than-expected result for Bank of China ( BACHF), both announced after the market closed Tuesday, helped lift sentiment slightly and ease short selling after the 6% rally.

Bank of China said that net profit for 2007 rose 31.3% to 56.2 billion yuan ($8 billion). The announcement surprised analysts, who expected lower earnings after the bank said it was forced to write down $1.3 billion of subprime-related investments late last year. Its shares rose 1.9% to HK$3.30. Industrial & Commercial Bank of China advanced 2.9% to HK$5.35.

One trader noted, however, that a large U.S.-based global hedge fund was not covering short positions in the current rally and remained relaxed about a further downturn. The trader added that the fund's manager had forecast correctly the downturn in Asian equity markets in November, and was one of the first to heavily short China Life Insurance ( LFC). China Life Insurance was one of the worst performing stocks in the fourth quarter last year.

China Life Insurance fell 0.2% to HK$27.40, while China's second-largest insurer, Ping An ( PIAIF), gained 0.6% to HK$53.65.

Telcos were holding up after posting mainly double-digit percentage gains Tuesday. China Mobile ( CHL), the Hang Seng's largest weighting, rose 0.7% to HK$113.30, while China Unicom ( CHU - Get Report) leaped the most in the sector, by 2.8% to HK$17.72. Market turnover on the Hang Seng fell to HK$89.91 billion ($11.5 billion) vs. HK$100.6 billion ($12.9 billion) Tuesday.

Commodity prices rose on a weaker U.S. dollar. Oil was trading at nearly $102 a barrel, and gold was selling for $941 an ounce in Singapore trading.

A stronger yen hit exporters in Japan, although data released during the morning shows that exports jumped 8.6% on the year in February, fueled by increased demand from Europe and Asia. The yen rose above the 100 yen to the dollar level, and was settling at 99.34 by the Japanese evening. Canon lost 2.9%, to 4640 yen, and Sony ( SNE - Get Report) declined 0.7% to 4230 yen.

Other Asian markets were mixed. The South Korean Kospi rose 0.3% to 1679, after bargain-hunters picked up exporters, while the Taiwanese Taiex lost 0.3% to 8768. India's Bombay Sensitive Index fell 0.8% to 16,068.

Be sure to check out the Far East Portfolio at Stockpickr.com to find out which stocks in India and China are making big moves and announcing major news.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.