Asian shares rose on Wednesday but the euro was capped as investors concluded a European summit this week will fail to take concrete action to resolve the euro zone debt crisis, with Germany staunchly opposed to sharing the region's debt burden.
The dollar retreated from earlier highs against a basket of major currencies while commodities were mixed, reflecting reluctance by investors to place bets in either direction before the June 28-29 summit in Brussels.
"With expectations so low for any breakthroughs from the summit, it's hard to take any aggressive positions either way," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.
"But panic-selling momentum has clearly receded, suggesting more investors are looking for prices to pick up given that many asset classes have fallen to levels that could be snapped up quickly if fund managers started pouring money again," he said.
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.8 percent, driven higher mostly by short covering and valuation hunting after recent pull-backs. Japan's Nikkei average erased earlier gains to stand flat.
"Investors are waiting for the conclusion of the EU summit, even though they aren't expecting anything concrete to come out of it," said Yoshihiro Ito, chief strategist at Okasan Online Securities, adding that there were few factors other than exchanges rates to influence trading this session.
European Council President Herman Van Rompuy on Tuesday released a report on a closer fiscal and banking union, envisaging a euro zone treasury that would issue common debt in the medium term.
But German Chancellor Angela Merkel squashed the idea of common euro zone bonds, saying Europe would not share total debt liability "as long as I live".
A change in Germany's stance is widely seen by markets as pivotal to turning around the bearish sentiment, so her comments further convinced investors that the Brussels summit was likely to disappoint. The summit will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.
Commodities mixed
U.S. crude futures wiped earlier losses to inch up 0.2 percent to $79.52 a barrel and Brent crude also trimmed losses to stand down 0.1 percent at $92.97 a barrel.
London copper eased 0.2 percent at $7,344.50 a tonne while gold added 0.1 percent at $1,573.29 an ounce.
Gold has come under pressure on worries that a global economic slowdown triggered by a worsening debt crisis in Europe could erode its appeal as an inflation hedge and prompt them to turn to another safety asset, the U.S. dollar.
"We could see some more selling, maybe, but I think the $1,550 level should hold. I don't really expect it to go down to $1,500," Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.
A weak euro has also dented appetite for gold, which typically rises when the dollar weakens against the euro.
The euro held around $1.2500, off its lowest against the dollar in more than two weeks of $1.2441 hit on Tuesday, while the dollar index measured against a basket of key currencies was nearly flat around 82.338.
Summit offers 'no' magic solution
Nervous investors pushed Spanish short-term borrowing rates to their highest in more than six months on Tuesday and yields on Italy's new two-year paper to a new high since December. Italy will sell six-month bills on Wednesday and face a more challenging offer of five- and 10-year debt on Thursday.
"Global risk sentiment is trading sideways with a negative tone ahead of Thursday's European summit," said Barclays Capital analysts in a research note.
"This seems consistent with our 'muddle through' scenario in which no magic solution is likely to come from the upcoming summit, forcing troubled governments to push through reforms and austerity, as Germany continues to resist the fiscal transfers needed to place euro area in a solid recovery path."
Asian credit markets firmed slightly, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 2 basis points.
