Tech-heavy South Korean shares dragged down the broader Asian share index on Monday on fears of weaker earnings, but improving economic prospects in Europe and solid US profit reports underpinned sentiment.
The MSCI's broadest index of Asia-Pacific shares outside Japan inched down 0.2%, after seeing its biggest weekly loss in two months last week. Asian markets were in positive territory except in Seoul and Jakarta.
The Korea Composite Stock Price Index (KOSPI) extended losses to an 8-week low with a 0.6% slip, as a weakening yen soured the outlook for local exporters and foreign investors reduced their holdings.
Tech-heavy South Korea was also vulnerable to a clouding outlook for high-end smartphone device shipments.
"Investors have begun preempting concerns about exporters' outlooks since automakers announced weak earnings last week, while large-caps continue to be pressured by foreign selloffs," said Kim Hyung-ryol, an analyst at Kyobo Securities.
Global investor sentiment improved on Friday when the German Ifo business morale index improved in January to its highest in more than half a year, further evidence that Europe's largest economy is gathering speed again, and European banks were set to repay the European Central Bank a larger sum of money than expected to underscore stabilising financial system in the euro zone.
In China, data on Sunday showed profits earned by industrial companies rose 17.3% in December from a year earlier to 895.2 billion yuan, adding to evidence of a fourth-quarter economic recovery.
The yen extended losses to fresh lows, but Japanese equities gave up earlier gains and eased ahead of Japan's corporate reporting season which enters full swing this week.
Japan's Nikkei stock average edged down 0.1% after jumping 2.9% on Friday to log an 11th straight week of gains, its longest such run since 1971.
Against the yen, the dollar hit 91.26 early on Monday, its highest level since June 2010 while the euro touched 122.91, its highest point since April.
New Prime Minister Shinzo Abe has called for aggressive monetary easing and huge fiscal spending to beat deflation. The yen has fallen some 13 percent since mid-November when he began making those calls as part of his election campaign.
"The potent mix of Abenomics and strong risk appetite abroad is continuing to soften the yen, which means investors will still be buying stocks," said Masayuki Doshida, senior market analyst at Rakuten Securities.
In sharp contrast to U.S. and German equities, the Nikkei remains well below levels before the financial crisis in 2008, reflecting the magnitude of negative effect from the yen's strength. The benchmark Standard & Poor's 500 Index closed at their highest in more than five years on solid U.S. corporate earnings on Friday and Frankfurt's DAX index also scaled five-year highs.
The yen is still stronger than around 95 yen before the 2008 financial crisis, but both the euro and the dollar measured against a basket of key currencies hover at levels far below the pre-crisis levels.
Safe haven suffers
The improving global macroeconomic environment has curbed interest in safe haven assets such as gold.
Spot gold steadied around $1,659.90 an ounce on Monday, still below its 200-day moving average. As riskier equities rallied on Friday, bullion saw its biggest weekly drop this year on Friday.
US crude inched up 0.1% to $95.95 a barrel and Brent steadied around $113.23.
London copper, another industrial commodity linked to demand prospects, rose 0.4% to $8,065 a tonne.
With easing stress in financial markets, investors pumped $5.65 billion into stock funds worldwide in the latest week, with most of it flowing into emerging market stock funds, data from EPFR Global showed on Friday.
The euro hovered near an 11-month high of $1.3480 hit on Friday. The Australian dollar stumbled to an eight-month low against the euro early on Monday. European shares scaled fresh multi-month peaks on Friday.
Investors will focus this week on the Federal Reserve's Open Market Committee statement on Wednesday and US nonfarm payrolls due on Friday.
Sluggish equities weighed on Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 1 basis point.