Japan's Nikkei share average rose on Tuesday, with financial issues leading gains, after surprise weakness in US manufacturing data renewed speculation the US Federal Reserve may step in to boost growth.
Investors expect the world's other central banks, including the European Central Bank and the Bank of Japan, may also ease policy this month.
The Nikkei rose 0.5% to 9,044.55, though it stopped short of testing Monday's intraday high of 9,103.79, with traders expecting substantial selling around 9,100 from investors, among other Japanese retail investors.
US manufacturing shrank in June for the first time in nearly three years as new orders plummeted, with the Institute for Supply Management index of national factory activity falling to 49.7 from 53.5 the month before, missing expectations of 52.0.
"As Europe seems to be stabilising for now, the focus is now on the state of the global economy but the ISM figures were terrible," said Kenichi Hirano, market analyst at Tachibana Securities.
"Still, what is equally surprising is the resilience of US shares, which suggests investor sentiment remained strong because they link bad data to the chance of the Fed's QE (quantitative easing)," he added.
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With the European Central Bank widely expected to cut rates this week, some investors think risk assets around the world are likely to be on firm footing despite fresh doubts about the euro zone's deal announced last week.
"Investors have been unwinding risk-off trading since early June and I think that will continue for now despite concerns over the global economy in the medium term," said Soichiro Monji, chief strategist at Daiwa SB Investments.
"Compared to one month ago, Europe has clearly made some progress...After a likely ECB rate cut, investors may shift funds out of bunds to riskier assets," he added.
Many market players also speculate that the Japanese central bank could increase its asset purchases later this month.
Bank shares rose 1.5%, in part helped by Daiwa's upgrade of the country's top three banks. MUFG rose 2.1% while SMFG climbed 1.5%.
The strength of bank shares helped to lift the broader Topix index 0.8% to 775.60.
On top of banks, insurers climbed 1.8% while securities brokerage gained 1.4%
On the other hand, Kawasaki Kisen, one of Japan's top three shippers, shed 13% to 137 yen after the shipping company said on Monday it would raise 28.6 billion yen by issuing up to 200 million new shares for capital spending, which will increase the total number of shares by 26%.