Asian shares rose on Tuesday on the back of strong gains in global equities overnight, after solid manufacturing data from the United States, and as leading Asian exporters offset signs of mild recession in Europe.
MSCI's broadest index of Asia Pacific shares outside Japan gained 0.5% while a firmer yen hurt Japan's Nikkei average, which fell 0.5% and moved further away from a one-year high hit last week.
Australian shares were underpinned after oil prices rallied 2% on Monday, although oil retreated this session.
"The current market environment is favourable in that it is inching higher while digesting caution and concerns about growth prospects, which suggests sentiment is actually quite solid," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.
"One good indicator for growth is oil price, which has remained supported in part by supply disruption concerns, but its firmness is also driven by demand accompanying economic recovery," he said.
The stronger-than-expected US factory data pushed US stocks to four-year highs, while European shares recorded their biggest daily gain in three weeks despite sluggish factory activity in the euro zone.
"The US stock rally will definitely lend a hand," said Bae Sung-young, an analyst at Hyundai Securities in Seoul. "Worries of a slowdown in China's economy are starting to settle."
The Institute for Supply Management reported the pace of growth in the US manufacturing sector picked up to 53.4 in March from 52.4 in February, above a 53.0 forecast.
This followed a surprise jump in China's large factory activity and stronger manufacturing in other leading exporters, South Korea and Taiwan, but output was still far from robust.
Data on Monday also showed the euro zone's manufacturing contracted for the eighth straight month, with the downturn in smaller euro zone nations spreading to core countries Germany and France.
"Global industrial production is unlikely to resume an uptrend just yet and while the downtrend persists, this remains in a stabilization phase," Barclays Capital analysts said.
"We remain comfortable with our view that US cyclical out performance will continue to support the USD against low yielding developed market currencies, as well as the CAD against other commodity currencies," they said.
US Yields Eyed
Investors will likely remain cautious about taking aggressive risks, ahead of key data including US nonfarm payrolls on Friday and China's first quarter gross domestic product due next week.
Later in the session, the US Federal Reserve's Federal Open Market Committee will issue minutes from its meeting of March 13.
"Tuesday's release of the FOMC minutes may include a discussion of QE (quantitative easing) and shed more light on the possibility of a QE3 to come," said Societe Generale analysts. "Market expectations range from viewing the Fed as in a wait-and-see mode to the anticipation of a concrete QE3 announcement in the April FOMC meeting."
Views over the Fed's policy direction are key to determining money flows, as receding expectations for further monetary stimulus have boosted US Treasury yields and lifted the dollar last month against such low-yielding currencies as the yen.
A fall in US Treasury yields pushed the dollar lower against the yen on Monday. The dollar extended losses to hit a three-week low of 81.55 yen on Tuesday after stop-loss selling triggered around 81.90 yen and also below 81.80 yen, traders said. The euro edged up 0.2% to $1.3343, off Monday's low of $1.3278.
Oil paused from Monday's strong gains, with Brent crude futures easing 0.3% at $125.07 a barrel after settling up $2.55, while US crude was down 0.3% to $104.96 a barrel, after settling up $2.21.
Shanghai markets are closed through Wednesday while European, US and some Asian markets will be closed on Friday for the long Easter weekend.
Asian credit markets firmed, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 2 basis points.
