Asian shares jumped on Tuesday after China moved to support its stock market by buying shares of major banks, and the euro held the previous session's big gains on hopes that European leaders are finally taking action to protect the continent's lenders.
World stocks clambered out of bear market territory on Monday after a pledge from German and French leaders to come up with a plan by the end of the month to tackle Greece's confidence-sapping debt woes and recapitalize European banks.
I think it is significant that Germany and France came together to show they will not allow big banks to collapse, said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. Hopes that there won't be an abandoned bank like Lehman will ease excessive worries in the market.
Commodities were steady after surging on Monday as money flowed back into riskier assets.
Shares in China's big four banks leapt after the country's sovereign wealth fund bought their shares in the secondary market on Monday, in Beijing's first move to support stock prices since the 2008 financial crisis.
Japan's Nikkei share average <.N225> rose 2.2 percent, partly catching up with gains elsewhere in the region on Monday, when Tokyo was shut for a holiday. <.T>
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> also rose 2.2 percent, led by a jump in Chinese shares, with Hong Kong's Hang Seng <.HSI> up 3.6 percent and Shanghai's benchmark <.SSEC> up 2.8 percent. <.HK> <.SS>
Global markets were buoyed after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would agree on how to recapitalize European banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3-4.
In our view that is both a positive and a negative, said Dan Greenhaus, New York-based chief global strategist at broker-dealer BTIG. It was negative in that no specific details were provided, but positive that they have given a self-imposed deadline.
Greenhaus told Asia-based reporters on a conference call that BTIG believed Europe's banking sector would need an injection of 300-500 billion euros.
Ultimately the major banks need to be recapitalized, but not recapitalized by an unreachable amount of money, he said.
Wall Street stocks <.SPX> rose more than 3 percent on Monday and European shares gained nearly 2 percent. <.N> <.EU>
MSCI's All-Country World index <.MIWD00000PUS> now stands around 18 percent below its May high for the year after climbing above the 20 percent loss level -- the rule-of-thumb definition of a bear market -- on Monday.
The euro was firm around $1.3648 on Tuesday, after surging as much as 3 cents to a high just below $1.37 in the previous session. The single currency edged up against the yen to around 104.60.
The dollar was flat against a basket of currencies <.DXY>, and U.S. Treasuries fell as investors appetite for riskier assets returned, with the 10-year yield rising 10 basis points to around 2.164 percent.
Oil edged up, with U.S. crude up 25 cents at $85.65 a barrel and Brent crude gaining 15 cents to $109.10.
Gold, which in recent weeks has switched from a negative to a positive correlation with riskier assets such as industrial commodities and stocks as safe haven investors turned instead to the dollar, rose 0.4 percent to around $1,684 an ounce.
(Additional reporting by Hideyuki Sano; Editing by Ramya Venugopal)