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Asian shares edged higher to extend gains for a third day on Friday, tracking an overnight rise in global equities on easing fears of an early end to US monetary stimulus, but caution remained about the recently volatile Chinese markets.
Global equity markets and bonds extended gains on Thursday, recovering further from the recent acute selloff, after three US Federal Reserve officials sought to downplay market fears that the central bank would soon ease its unprecedented bond-buying stimulus programme known as quantitative easing or QE.
The FTSEurofirst 300 index of top European shares rallied for a third straight day on Thursday as investors focused on data suggesting US growth picking up, with consumer spending rebounding in May and jobless claims falling last week.
Investors are seeking to balance positive and negative aspects of US recovery, with a steady growth trend in the world's largest economy reducing downside risks to global economies, but allowing the Fed to proceed with its plan. QE, aimed at supporting growth, has underpinned broad risk asset markets with abundant cheap credit.
"Markets have reached the stage where negative US economic news is interpreted as risk positive, and vice versa. This supports our thesis that US economic strength will lead to a wave of dollar repatriation, undermining economies reliant on a long period of cheap dollar funding," Morgan Stanley said in a research note.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 % after rising 1.6 % for a second daily gains on Thursday which took the index away from an 11-month low touched earlier in the week and wipe away this week's steep losses.
Australian shares were steady while South Korean shares opened up 0.5 %.
Japan's Nikkei stock average opened up 1.3 % after soaring 3 % on Thursday for its biggest one-day %age gain in 13 sessions.
An improving economic outlook and rising yields accompanying the Fed's announcement last week of its plan to start scaling back its aggressive monetary stimulus later this year have boosted the appeal of the US dollar.
The dollar has also benefited from its safe-haven appeal as China's resolve to crack down on risky informal lending resulted in tight funding conditions, spiking money market rates to record highs and triggering worries that a crisis in China's banking system would undermine growth in the world's second-largest economy.
Chinese money market rates moderated for a fifth day on Thursday and stocks recovered some of their recent hefty losses after the central bank earlier this week moved to quell concerns, saying it had provided funds to some institutions and will do so again if needed. But confidence remained fragile as Beijing remains committed to cleaning up "shadow banking."
The strong dollar in turn weighed on dollar-denominated commodities and commodity-reliant markets, with gold taking a double whammy as a commodity and an alternative safe haven.
US gold futures fell 1 % to a session low of $1,199.50 per ounce in early Asia on Friday after liquidation by investors sent prices below $1,200 per ounce for the first time in nearly three years on Thursday. Spot gold was up 0.2 % in early Asia on Friday at $1,201.85.
US crude futures eased 0.2 % to $96.83 a barrel.
The dollar was up 0.1 % against a basket of major currencies after reaching a near one-month high of 83.171 on Thursday. It was up 0.2 % against the yen to 98.53.
In Europe, some signs of stability also emerged, with healthy demand at Italian bond auctions and the European Union agreeing on Thursday to force investors and wealthy savers to share the costs of future bank failures.
