Asian shares rose on Tuesday as recent selling drew bargain hunters, but investors were cautious ahead of more U.S. economic reports and a Federal Reserve policy decision later in the week that may offer clues to the Fed's stimulus plans.
The MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 0.7 percent to snap a four-day losing streak, led by a 1.1 percent jump in Australian shares to a fresh 21-month high on gains in financials shares.
South Korean shares .KS11, which slumped to an 8-week low on Monday, rebounded 0.8 percent.
Japan's Nikkei stock average .N225 reversed earlier declines and rose 0.6 percent, buoyed by optimism over earnings of major banks. It briefly touched a fresh 32-month high above 11,000 on Monday.
The benchmark Standard & Poor's 500 Index .SPX eased slightly on Monday after an eight-day winning run but held above 1,500 points, after closing above that level on Friday for the first time in more than five years.
Risk appetite has been improving overall with U.S. earnings generally solid. A rise in a gauge of planned U.S. business spending in December added to a recent run of positive global economic data, along with signs of easing financial stress in the euro zone. Euro zone blue chips touched fresh 18-month peaks on Monday.
More solid U.S. growth indicators would, however, fuel speculation the Fed may consider pulling back on aggressive easing stimulus. The Fed ends a two-day policy meeting on Wednesday. The first estimate of U.S. fourth-quarter gross domestic product also will be released on Wednesday, followed by non-farm payrolls on Friday.
"Ahead of key events, markets are likely to stay in ranges. But with yields on U.S. Treasury and German government bonds inching higher, one might say investors may be shifting funds to riskier assets from safe-havens," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
"That's part of the reason why the euro has stayed firm," he said.
Saito said while a rise in U.S. yields underpins the dollar against the yen, they were likely to be capped with end-month selling from exporters and options lined up between 90.50 and 91.50 yen.
The benchmark U.S. 10-year note yield briefly pierced 2 percent on Monday for the first time since last April, and inched up 1 basis point (bps) in Asia from New York close. The 10-year Japanese government bond yield also rose.
Naka Matsuzawa, fixed income strategist at Nomura Securities, said in a research that 5-year Treasuries have sold off about 10 bps over the last two days and breached 0.80 percent that has served as a support since April 2012, a sell-off which "would not have occurred unless expectations of an economic recovery have gained ground to the extent that the monetary policy outlook begins to change."
"The market is aware that risks are toward more hawkish FOMC statements in the future rather than dovish ones," considering a pick-up in the U.S. economic recovery and stock market rally, as well as the underlying global risk-on trend, he said.
YEN SELLING PAUSES
Yen selling paused, helping to bolster the benchmark South Korean stock index which is vulnerable to exchange rate swings as exporters lead market capitalization.
The dollar fell 0.1 percent to 90.78 yen after touching 91.32 on Monday, its highest level since June 2010, while the euro recouped earlier losses against the yen to steady around 122.14 yen after hitting 122.91 on Monday, its highest point since April.
The euro steadied against the dollar at $1.3456.
The pound fell to $1.5687 GBP=D4, near its lowest since August, in part because of comments from incoming Bank of England Governor Mark Carney that there was still scope for monetary policy to do more in the developed world.
"The prospect of more activist monetary policy is not exactly an encouraging one for GBP, certainly not as it comes on top of a host of other negative developments - an economy that is triple-dipping, a government that is struggling to cut its deficit, and soul-searching about the UK's role within the EU," wrote analysts at JPMorgan in a note.
But a more positive global growth outlook underpinned commodities.
U.S. crude rose 0.2 percent to $96.67 a barrel and Brent inched up 0.1 percent to $113.54.
London copper gained 0.2 percent to $8,065.50 a tonne.
Gold inched up 0.3 percent to $1,659.66 an ounce but was capped by receding investor appetite for safe-haven assets.