Asian shares edged up on Thursday as a surge in the volatile Shanghai market helped underpin indexes around the region, offsetting a rocky start to the month on worries the global economic recovery is losing steam.
European stocks were set to struggle in early trade after a dip on Wall Street, with futures on the Dow Jones Eurostoxx 50 down 0.2 percent.
The sharp pull-back in U.S. shares on Tuesday stirred some worries that equities may have topped out and are due for a deeper retreat after rallying almost non-stop for six months on the improving corporate earnings and growth outlook.
The steady drop in government bond yields over the past month has also been taken as a worrying sign that bond market is ahead of stocks in seeing an economic deterioration on the horizon.
Japanese government bonds were steady and gold remained near a three-month high reached on Wednesday, after a survey of the U.S. private sector labor market in August showed more job losses than expected, increasing nervousness about the official payrolls figure at the end of the week.
The data clouded the outlook further, with investors torn between a quicker-than-expected recovery in manufacturing around the world and optimism in the technology sector on one hand, and on the other evidence that U.S. consumers are still not spending.
Another survey of the U.S. jobs market painted a brighter picture. The Monster Worldwide survey of marked its biggest monthly increase in four years in August.
It seems the market keeps on pricing more uncertainty about the sustainability of the recovery, said Sebastien Barbe, senior economist with Calyon in Hong Kong, in a note.
Barbe characterized investors in Asian markets as being in a fatigue mood, since they have been much less likely to buy riskier assets such as equities and emerging market currencies and bonds, even with a steady flow of relatively positive economic data.
Japan's Nikkei share average was down 0.6 percent, led by Honda Motor Co stock <7267.T> and other automakers as the yen's rise prompted profit-taking in the sector.
We're in a situation now where expectations outpaced reality over the last two months. This is just a natural adjustment, even though the economy is over the worst, said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities in Tokyo.
Shares of Fast Retailing <9983.T> were up 4.5 percent, limiting losses on the index, after the clothier said it wanted to boost annual sales more than seven-fold to $54 billion by 2020 and become a global fashion powerhouse.
The MSCI index of Asia shares traded outside Japan rose 0.8 percent <.MIAPJ0000PUS>, with strength in the Hong Kong and Taiwan markets bolstering the index. On Wednesday the S&P 500 <.SPX> slipped 0.3 percent on a further drop in financial shares.
The MSCI benchmark for Asia is still up 71 percent from March 9, when investors began to bet on a robust recovery. By contrast, the all-country world equities index <.MIWD00000PUS> is up 48 percent since then.
Shanghai's stock market <.SSEC> jumped 4.6 percent after a top securities regulator said late on Wednesday the market was healthy and pledged to keep it stable, driving some investors in search of bargains after a 22 percent plunge in August.
The lift in Chinese shares was enough to raise U.S. stock futures and push down U.S. Treasury futures.
Global investors have been keeping an eye on the domestic Chinese market, which is largely closed to foreigners, fearing that the sell-off could signal slowing growth. Many analysts have warned not to read too much into the sharp swings in the Shanghai Composite.
The index poked back above the 125-day moving average, what Chinese investors believe is the divider between bull and bear markets, after falling below it on Monday.
The U.S. dollar fell briefly below 92 yen for the first time since mid-July, before clawing up 0.2 percent to 92.40 yen as the low-yielding Japanese currency lost ground on the rebound in Shanghai.
The Australian dollar erased earlier losses against the yen and was up 0.4 percent at 77.30 yen. The Aussie has been a favorite among investors for most of the last six months because of its relatively high yield and positive growth prospects among developed currencies.
The yen has a high probability of rising further, pushing the dollar below 90 yen, said Tohru Sasaki, chief currency strategist with JPMorgan in Tokyo. Such gains would put further pressure Japanese stocks.
Sasaki said the drop in U.S. Treasury yields was one factor that could hurt the dollar against the yen.
Treasuries fell in Asia, pushing the 10-year yield up 3 basis points to 3.331 percent but near a three-week low of 3.287 percent hit on Wednesday. But Japanese government bonds were mixed, with the 10-year yield holding at 1.305 percent.
In commodities, U.S. crude for October delivery edged up 38 cents to $68.43 a barrel. Oil fell around $5 a barrel on Monday and Tuesday on fears about energy demand in a soft recovery ,but a weaker U.S. dollar and steep decline in gasoline inventories supported it on Wednesday.
(Additional reporting by Kevin Plumberg in Hong Kong and Elaine Lies in Tokyo; Editing by Kazunori Takada)