Asia stocks and the Australian dollar bounced back on Wednesday from a two-day slide, with investors taking heart from data showing the U.S. economy slowly healing while keeping an eye on the spread of swine flu around the world.
Futures on European equity indexes were up between 0.4 percent and 0.6 percent, signaling a positive start to trade.
The yen slid against higher-yielding currencies on improving risk appetite after data showing U.S. consumer confidence posting its biggest monthly jump in three years and tumbling home prices starting to slow from a record pace.
The signs of gradual recovery in the struggling U.S. economy helped ease some of the worries about the impact of the swine flu and reports that top U.S. banks will need to raise more capital after the government stress tests.
But investors were still on high alert over the risk of swine flu being declared a pandemic and the potential economic damage.
The sentiment is not that of panic but that of caution. There is no indication on how bad the situation may get, so investors are guarded about taking new positions, said Alex Wong, director with Ample Finance Group in Hong Kong.
Though Hong Kong has the SARS experience behind it, there are fears that this swine flu may be different and could potentially do more damage he said.
A global hunt turned up new infections all around the world, and frightened governments warned people to stay away from Mexico, where up to 159 people have died.
The number of infections in the United States rose to 65, Canada has 13 and new cases were also confirmed in Israel and New Zealand. But global health officials cautioned that the numbers meant little in a rapidly changing situation.
Seoul's KOSPI index <.KS11> climbed 2.9 percent, led by shares of technology companies like Samsung <005930.KS> and LG Electronics <066570.KS>, as well as banks.
Analysts were still cautious about how much further shares could rise given the still severe troubles gripping the global economy.
In order for the index to make a meaningful rebound, we need clearer signs that the global economy and corporate earnings will pick up by 2010, but we haven't seen those yet, said Choi Seong-lak, a market analyst at SK Securities in Seoul.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose about 2.3 percent after the U.S. S&P 500 <.SPX> slipped just 0.3 percent overnight. S&P futures were up 0.8 percent in Asia.
Trading was limited due to a holiday in Japan, which begins its Golden Week string of holidays that continue next Monday through Wednesday. Many markets in Asia and around the world will also be closed on Friday for May 1 holidays.
Market players are looking ahead to U.S. first-quarter GDP figures and the outcome of the Federal Reserve's two-day policy meeting later in the day.
The Fed is not expected to make any big changes at this meeting after shocking investors last time with its decision to make large-scale outright purchases of Treasuries.
AUSSIE JUMPS, NZ SWAP RATES DOWN
The Australian dollar -- still among the most sensitive currencies to shifts in risk appetite due to its relatively high yield -- jumped 1.3 percent to $0.7147 and gained 1.6 percent against the yen.
Traders said some short-term speculators were covering short positions in Aussie/yen and other yen cross currencies, which tend to move in line with stocks, that were taken on news of the swine flu outbreak at the start of the week.
The dollar climbed 0.4 percent to 96.75 yen and recovered from a one-month low hit the previous day, while the euro was up 0.9 percent to 127.70 yen.
As stock markets around the world rallied about 30 percent from their early March lows, market players also favored traditional carry trade players in currencies -- borrowing cheap funds in low-yielding currencies such as the yen to buy higher-yielding ones.
In New Zealand, rates on interest-rate swaps fell further, a day before the Reserve Bank of New Zealand is expected to cut rates by a half-point to a record low 2.5 percent at a policy meeting.
But short-term rate markets are not pricing in a full 50 basis point cut as most analysts expect.
Market players were caught off guard after the RBNZ cautioned at its last meeting that its needs to retain competitiveness in global markets -- a phrase taken to mean sufficiently high interest rates to attract foreign capital to cover its large current account deficit.
One-year swap rates fell 10 basis pints to 2.955 percent and were just 14 basis points above a record low hit in early March.
(Additional reporting by Jungyoun Park in Seoul and Parvathy Ullatil in Hong Kong; Editing by Mathew Veedon)