Asian stocks rose on Thursday, buoyed by solid earnings from major exporters such as Toyota and chipmaker UMC, while upbeat U.S. economic data lifted the beaten-down dollar and eased some concerns about its recovery.
European markets were also expected to rise following stronger-than-expected growth in the U.S. services sector, though traders were cautious ahead of U.S. non-farm payrolls data on Friday.
Financial bookmakers expected Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI> and France's CAC-40 <.FCHI> to open as much as 0.4 percent higher, with investors also eyeing central bank meetings later in the day.
Both the European Central Bank and the Bank of England are expected to keep interest rates at record lows as they wait for more evidence that their economic recoveries are taking hold.
In Japan, strong results from Toyota Motor Corp <7203.T> pushed the Nikkei average <.N225> 1.7 percent higher, reversing much of Wednesday's 2.1 percent drop when investors worried that exports would suffer as the yen rallied toward 15-year highs against the dollar.
Toyota climbed more than 3 percent before losing some steam after reporting its biggest operating profit in two years and lifting its forecasts.
The MSCI index of Asia Pacific ex-Japan stocks <.MIAPJ0000PUS> edged up 0.1 percent, on the heels of a 2.3 percent rise this week to a three-month high. Consumer staples <.MIAPJCS00PUS> and resources <.MIAPJMT00PUS> outperformed.
We had four weeks of fantastic markets, so some correction is to be expected, said Khiem Do, head of the Asia multi-asset group at Baring Asset Management, which oversees $50 billion.
A few months ago, investors were drumming up fears of a double dip recession but second quarter results were quite good, so analyst are revising their numbers up again. A see-saw pattern is developing and seen continuing over the next few months.
In Taiwan, United Microelectronics Corp (UMC) <2303.TW>, the world's second-biggest contract chipmaker, rose 0.7 percent after it reported strong quarterly earnings and an increase in its 2010 capital spending plans.
The dollar index <.DXY> was steady against a basket of other major currencies after a rare rally on Wednesday when the U.S. services data sparked a bout of short-covering.
Against the yen, the dollar was down 0.1 percent on the day at 86.19 yen, after rising to 86.29 from an eight-month low of 85.32 yen hit on Wednesday.
The yen's pullback against the dollar and stronger Tokyo stocks prompted traders to take profits on Japanese government bonds after a rally that took the benchmark 10-year yield to a seven-year trough below 1 percent on Wednesday. The yield climbed 1.5 basis points to 1.010 percent on Thursday.
Optimism over the U.S. services data has offset to some extent expectations the U.S. Federal Reserve might take further steps into quantitative easing at its policy meeting next week, undermining safe-haven U.S. Treasuries and JGBs.
Not only is the services sector - the vast bulk of most modern economies - expanding, it is doing so at a faster pace, said Adam Carr, a senior economist at broker ICAP, referring to the U.S. data.
Commodities are telling us that this global recovery has reasonable momentum, he said, adding that iron ore prices had risen around 20 percent in the past month, while copper was up 16 percent and wheat 40 percent.
Commodity-linked currencies such as the Australian and Canadian dollars also remained strong.
The Aussie hovered around three-month highs against the dollar. It was firm at $0.9158, off the day's high of $0.9182. The dollar slipped to its lowest in six weeks against the Canadian currency.
But another commodity-linked currency, the New Zealand dollar, fell after local jobless data proved weaker than expected, prompting markets to scale back expectations for more interest rate rises this year.
The currency, which normally tracks commodity trends, fell 0.7 percent to $0.7300.
Aggressive bets are also coming off ahead of the U.S. jobs data on Friday. The report is expected to show a drop of 65,000 in July as Census jobs dried up.
U.S. companies hired more workers in July than forecast, payroll-processing company ADP said on Wednesday, but analysts said the gains were too slow to reduce stubbornly high unemployment or give a significant boost to the economy.
Oil prices fell for a second straight day, moving toward $82 a barrel, crimped by the dollar's strength and after U.S. stocks of gasoline and distillate fuels, including diesel, added to a string of gains.
(Additional reporting by Wayne Cole in SYDNEY; Editing by Kim Coghill)