Asian stocks broadly rose on Tuesday as a firm performance on Wall Street and optimism over corporate earnings offset increasing worries about the U.S. economy.
European shares also opened higher after four days of losses, as investors await earnings from Goldman Sachs and Apple .
In Asia, banks <.MIAPJFN00PUS> and resources firms <.MIAPJMT00PUS> led the rebound, pushing the MSCI index of Asia Pacific ex-Japan stocks <.MIAPJ0000PUS> up 1.5 percent.
But the Nikkei average underperformed its regional peers, dropping as much as 1.7 percent partly due to the strength of the yen as markets in Japan opened after a three-day weekend.
The yen hovered near its a 7-month high against the dollar, amid growing talk of intervention as traders wondered if Tokyo could stomach further yen gains.
In addition to company results, investors are also awaiting U.S. housing starts data later on Tuesday and comments from the U.S. Federal Reserve Chairman Ben Bernanke later in the week.
The Nikkei average <.N225> recovered some of its earlier falls, but still closed 1.15 percent down, in contrast with other tech-heavy benchmarks.
The Korea Composite Stock Price Index <.KS11> (KOSPI) finished 0.3 percent higher and Taiwan's main TAIEX share index <.TWII> closed up 0.8 percent on earnings prospect for exporters.
Big tech companies that have a wider customer bases and good product portfolios should still be doing okay in the third quarter, said John Chiu, a vice-president at Fuh Hwa Securities Investment Trust.
Wall Street rose on Monday but results released after the closing bell from key tech firms International Business Machines and chip maker Texas Instruments failed to impress as their revenue growth disappointed markets.
Lorraine Tan, director of Asia equity research at Standard & Poor's said that corporate profits were better than their revenues because of benign costs and operating leverage.
Investors also faced yet more worrisome data from the United States. On Monday, the National Association of Home Builders/Wells Fargo Housing Market index fell more than expected in July to its lowest level since April 2009 after a popular tax credit for homebuyers expired in April.
U.S. earnings and indicators are increasing concern about a slowdown in the economy, said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.
We could definitely see a test of the downside, though not until later in the week.
JAPAN FRETS OVER YEN
The dollar was marginally higher against the yen at 87.01 yen, having hit a seven-month low of 86.25 on Friday.
The euro struck a 2-month high of $1.3022, having brushed aside Moody's downgrade of Ireland's credit rating on Monday and concerns that negotiations between Hungary and international lenders had broken down.
The dollar was bid up by Japanese importers, but was still within striking distance of a seven-month low versus the yen leading many market players to look to what authorities in Japan would do if the yen climbed to the 85 level.
Hong Kong's benchmark Hang Seng index <.HSI> was up 1.5 percent, boosted by banks which rose after China changed rules to allow the sale of yuan-denominated financial products in Hong Kong, giving companies greater access to yuan funding.
Standard Chartered Plc <2888.HK>, which immediately announced it would offer yuan-denominated structured investments to its retail and wholesale clients, rose 1.8 percent and BOC Hong Kong (Holdings) <2388.HK> was up 1.6 percent.
The Shanghai Composite Index <.SSEC> was up nearly 2 percent on higher volume, buoyed by developers, as investors gained confidence that property policies would remain steady for the rest of the year after a series of tightening steps.
Oil futures rose toward $77 a barrel, supporting shares of energy companies, as forecasts for a fourth consecutive weekly drop in U.S. crude inventories countered fears that a slowdown in the global recovery would curb fuel demand.
(Additional reporting by Elaine Lies in TOKYO and Baker Li in TAIPEI)
(Editing by Kim Coghill & Kazunori Takada)