By Shinichi Saoshiro and Tomo Uetake
TOKYO (Reuters) - Asian stocks reached a more than four-month high on Wednesday, lifted by optimism that the United States and China might be able to hammer out a deal to resolve their nearly year-long trade dispute.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6 percent to its highest level since early October and Japan's Nikkei average climbed 1.3 percent to an eight-week high.
China's Shanghai Composite and blue-chip CSI 300 were both up around 2 percent to multi-month highs, with IT shares leading the gains on Beijing's promise to push for core technology and innovation.
Asia took its cue from Wall Street, where the Dow and Nasdaq each rallied about 1.5 percent overnight on optimism over U.S.-China trade negotiations and a tentative U.S. congressional spending deal to avert another partial government shutdown.
European shares were expected to open higher, with financial spread-betters seeing Britain's FTSE, France's CAC and Germany's DAX each ticking up between 0.4 and 0.5 percent.
U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China "slide for a little while," if the two sides were close to a complete deal.
Officials in Washington and Beijing had expressed hopes that a round of talks this week would bring them nearer to easing their seven-month trade war.
"We are currently seeing negative sentiment which had built up over trade concerns and U.S. fiscal issues being unwound," said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.
"For risk assets to move purely on optimism, the U.S.-China trade row will need to see some kind of a closure in March. A more permanent solution to avoid a U.S. government shutdown is also necessary. It has to be remembered that we are not there yet."
U.S. congressional negotiators cobbled together a tentative bipartisan border security deal late on Monday to avert another partial government shutdown. However, Trump on Tuesday expressed displeasure with the agreement and said he had yet to decide whether to support it.
The Cboe Volatility Index, Wall Street's so-called "fear gauge," dropped overnight to as low as 14.95, its lowest level in more than four months.
With risk aversion ebbing for the time being, safe-haven government bonds were sold and their yields rose. The 10-year U.S. Treasury note yield extended an overnight rise and edged up to a one-week high of 2.700 percent.
The dollar was on the defensive as investors shifted their money to riskier assets amid hopes for a U.S.-China trade deal.
The dollar's index against six major currencies stood at 96.667 after its eight-day winning run came to an end overnight to push it away from a two-month peak.
The euro was a shade higher at $1.1336 having gained 0.5 percent the previous day, when it bounced from a three-month low of $1.1258.
Against the yen, the greenback edged up as much as 0.2 percent to 110.705 yen, its highest level in 1-1/2 months.
The kiwi dollar jumped as much as 1.7 percent to a one-week high of $0.6852 after the Reserve Bank of New Zealand held the official cash rate at a record low of 1.75 percent and sounded less dovish than markets had wagered on, forcing some short covering.
In commodities, U.S. West Texas Intermediate (WTI) crude oil futures were up 1.0 percent at $53.65 per barrel after rallying 1.3 percent on Tuesday, while International Brent crude futures were up 1.0 percent at $63.07 per barrel.
Oil prices surged on Tuesday after OPEC figures showed it cut production sharply in January, and as lead member Saudi Arabia said it would reduce its output in March by an additional 500,000 barrels.
(Reporting by Shinichi Saoshiro & Tomo Uetake; Editing by Richard Pullin and Richard Borsuk)
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