Japan's Nikkei average rose on Wednesday, recovering further from Monday's six-month closing low as investors looked to policy makers to counter the euro zone crisis, and Australian and US data offered some positive news.
Finance ministers from the Group of Seven major economies held a phone hook-up, but announced no concrete measures, while the European Central Bank will hold its regular rate-setting meeting later on Wednesday.
"The sense of alarm will remain in the market because any financial strategy they may introduce can buy time, but won't fundamentally improve the global economy," said Tetsuro Ii, president of Commons Asset Management. "Europe is still in a very tight situation and that's the focus."
The Nikkei closed up 1.8% at 8,533.53, clawing back above the psychological 8,500-mark and topping its five-day moving average of 8,438.83.
Nomura Holdings surged 4.8% , partly boosted by news that Japan's top investment bank, which is under investigation for insider trading, is among four Japanese and five foreign brokerages shortlisted to underwrite a government sale of shares in Japan Tobacco.
Nintendo Co Ltd slipped 1.8 % after failing to impress investors with its new Wii U games console after a 3 % gain on Tuesday in anticipation of its unveiling.
Providing a ray of optimism after a run of recent soft US economic data, the services sector in the world's largest economy expanded faster than expected in May. The market was also buoyed by news that Australia's economy grew 1.3 % last quarter, outpacing expectations.
"We're basically in a technical correction, with a lot of short-covering," said Hiroyuki Fukunaga, chief executive of Investrust. "The market isn't any more liquid but futures suddenly picked up today ahead of the SQ (special quotation) on Friday."
A slew of stock options expire on option SQ days in Japan, typically causing a spike in opening volumes.
The Nikkei's slow stochastic and moving average convergence-divergence, two short-term trend guides, suggest a period of recovery.
The broader Topix index added 1.5 % to close at 718.56 after shattering the 700-mark on Monday to hit a more than 28-year low.
Canon Inc rose 3 % as the second most traded stock on the main board by turnover, extending its 3.4 % gain on Tuesday after the camera and printer maker announced a $640 million share buyback.
Other stocks with high exposure to Europe continued to regain ground, after Monday's steep losses, as the yen eased against the euro. Mazda Motor Corp gained 4.3 %, while TDK Corp jumped 5.3 %.
Yet investors remained cautious after Spain said at the G7 meeting that it was losing access to credit markets and urged Europe to help to revive its troubled banks.
Market players also shied away from shifting position ahead of the European Central Bank meeting, while US Federal Reserve Chairman Ben Bernanke is due to speak to a congressional committee on Thursday.
"I am covering some short positions. A lot of technical indicators are showing a buying opportunity. In addition, valuations are extremely cheap," said Yasuo Sakuma, portfolio strategist at Bayview Asset Management. The Topix's 12-month forward price-to-earnings ratio has fallen to 10.7 from last week's 10.9 - a level not seen since November 2008, data from Thomson Reuters Datastream showed.
"However, we remain cautious. I don't want to bet on an extreme long position or an extreme short position. I am in a neutral position," Sakuma said.
Trading volume on the Topix topped that of the previous three sessions but was still moderate, with 2.1 billion shares changing hands.
Fixing Olympus Olympus Corp climbed as much as 3.5 % after Kyodo news agency said Panasonic Corp is making final arrangements to provide up to $635 million in capital to the scandal-hit camera and endoscope maker. It pared gains to close up 0.5 %.
The move will make Panasonic, which has been hobbled by losses in its TV business, the top shareholder in Olympus, which is recovering from a massive accounting scandal. Panasonic shares rose 3.7 %.
