Asian shares head higher, euro gains ground ahead of Fed

Investors on tenterhooks over when the Fed will start to reduce its stimulus

Asian shares pushed higher on Tuesday on the back of rising US manufacturing output and a jump in euro zone business activity, ahead of a momentous US Federal Reserve policy decision later this week.

Investors are on tenterhooks over when the Fed will start to reduce its $85 billion-a-month bond-buying programme, a major driver of global risk assets in recent years.

A majority of economists polled by Reuters expect the taper to happen in March, but a recent run of upbeat economic data has steadily shortened the odds on an announcement at this week's two-day meeting concluding on Wednesday -- or in January.

"Although we have heavier odds pinned on the tapering being announced in January, we think the economic case has already been made for pulling the trigger," analysts at Societe Generale wrote in a note.

"The only reason to delay would be to give the FOMC the opportunity to strongly signal its intent to taper in January. In either case -- actual taper or signal of impending taper -- we expect the 10-year US Treasury yield to test 2.9% and the curve to bear steepen."

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.4%, facing resistance at its 200-day moving average. The index hit a three-month intraday low in the previous session.

The Asia ex-Japan gauge is down 1.4% this year, sharply underperforming a 47% jump in Japan's benchmark Nikkei, which is heading for its best yearly rise since 1972.

The Nikkei gained 0.8% on Tuesday, rebounding from a 3-1/2 week closing low in the previous session.

"With signs of recovery worldwide and stronger economic data, optimism has seemingly returned ahead of the key US Federal Reserve decision," said Tracey Warren, business development manager at CMC Markets stockbroking.

Financial bookmakers expected major European indexes to open flat to modestly weaker, however.

Overnight, US stocks rose, having posted their worst week since August on Friday, after manufacturing output increased for a fourth straight month in November, suggesting the economy is gaining momentum.

Yields on benchmark 10-year US Treasuries ended 11 basis points higher at 2.8793% on Monday, not far from a three-month high of 2.932% set on December 6.

EURO ATTRACTION

The pick-up in euro zone business activity boosted the common currency. It was up 0.1% at $1.37725, adding to Monday's 0.1% gain and within sight of a seven-week high of $1.3811 reached last week.

The dollar pulled back further against the yen from a five-year high set on Friday. The greenback was at 102.97 yen after easing 0.3% on Monday.

The Australian dollar was little changed after the Reserve Bank of Australia said there have been further signs that past cuts in interest rates are working to stimulate the economy, though it again would not rule out the chance of easing further if needed.

The Aussie dollar was at $0.8950, close to a 3-1/2 month low of $0.8909 set on Friday.

"Money market pricing on the next full 25 basis points move remains for a hike in 2015 suggesting that there may be some further scope for AUD-negative adjustment," Todd Elmer, head of G10 strategy for Asia ex-Japan at Citigroup in Singapore, wrote in a note.

Emerging Asian currencies came under pressure ahead of the Fed outcome, with Indonesia's rupiah at 12,115 per dollar, near its five-year low of 12,120 set on Monday.

Among commodities, US crude prices eased 0.1% to about $97.4 a barrel, giving up some of the previous session's 0.7% rise.

Gold rose 0.5% to around $1,246 an ounce, heading for a third straight gaining day, helped by short-covering ahead of the Fed outcome.