Asian stocks edged up on Monday, holding near a six-month peak and withstanding an early bout of profit-taking as investors eyed a slew of corporate earnings reports around the world this week.
European shares <.FTEU3> fell 0.4 percent in early trade, with Britain's FTSE 100 <.FTSE> off 0.1 percent and Germany's DAX <.GDAXI> down 0.8 percent.
The higher-yielding Australian dollar fell from a six-month high and commodity prices slipped after the initial drop in stocks, with assets that have gained the most on bets for a gradual global recovery coming under pressure.
The euro slipped to a one-month low against the dollar on uncertainty over what the European Central Bank's next policy easing steps will be.
Over the weekend, ECB President Jean-Claude Trichet said that the next move would be a quarter-point trim in rates, but other officials have sent mixed signals on what unconventional measures could be adopted.
The ECB has lagged moves by the Federal Reserve, Bank of England and Bank of Japan in making asset purchases on top of cutting interest rates to near zero to revive their recession-hit economies.
The euro looks set to fall further, following the same path as the dollar, sterling and the yen did when they faced month-long selling after their central banks adopted unconventional measures, said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.7 percent, getting a boost from gains in Hong Kong <.HSI> and Taiwan <.TWII>.
The MSCI benchmark last week hit its strongest levels since mid October and has surged 36 percent from its lows struck in March, outpacing recent gains in most other global stock markets. But it is still down a whopping 47 percent since the end of 2007 when the financial crisis flared up.
BOC Hong Kong <2388.HK>, the Bank of China's local subsidiary, jumped more than 5 percent after China said over the weekend it would allow Hong Kong banks on the mainland to issue yuan-denominated bonds, a move seen helping spur loan growth.
Chinese shares in Shanghai <.SSEC> rose 2.1 percent to eight-month highs as investors grew more confident about China's economic outlook, while South Korea added 0.6 percent. Australia's main index <.AXJO> slipped 0.2 percent.
U.S. shares climbed on Friday and the Dow Industrials average <.DJI> scored its strongest six-week run since 1938. But S&P futures were down 0.6 percent in Asia and were pointing to a weaker start at the opening bell.
U.S. banks will continue to be in focus, with results from Bank of America
President Barack Obama said on Sunday that the U.S. economy remained under strain, and his top economic adviser tempered hopes for a speedy recovery that have driven the stock market to successive gains.
Japan's Nikkei average <.N225> drifted up 0.2 percent, with
shares of steelmakers <.ISTEL.T> extending gains after they agreed to a smaller than expected price cut with Toyota <7203.T>.
The news offset Toshiba's <6502.T> 4.8 percent slide on reports the electronics maker will raise $5 billion in capital -- its first share issue in 28 years -- to bolster its financial position.
JGBS RETREAT, BUT NZ SWAP RATES SLIP
Government bonds in Japan retreated following a decline in U.S. Treasuries on Friday and as the rally in stocks was showing signs of holding up, even as some investors wondered if equities were due for a near-term reversal after the six-week run higher.
Japan's Ministry of Finance was set to meet with big investors after talks with primary bond dealers on Friday as it eyes how to smooth out the expected surge in bond issuance to pay for the country's latest stimulus package totaling $156 billion.
June JGB futures dipped 0.18 point to 136.63, near a six-month low. Benchmark 10-year JGB yields edged up 2.5 basis points to 1.470 percent.
But in New Zealand, five-year swap rates fell about 3 basis points to a one-month low of 4.745 percent as market players started seeing a bigger chance the country's central bank could cut interest rates by 50 basis points at a meeting next week.
The New Zealand swaps market has also settled down after rates soared in March as local banks tried to hedge themselves against an expected rush of homeowners resetting mortgages to fixed rates, taking advantage of historically low interest rates.
In currencies, the euro fell 0.4 percent to $1.2990 and struck a one-month low of $.2967 on trading platform EBS. Against the yen, the dollar dipped 0.2 percent to 98.95 yen.
The dollar index, a gauge of its performance against six major currencies, climbed slightly to 86.176 <.DXY> after pushing up to a one-month peak of 86.287 on the euro's drop.
U.S. crude oil prices fell as much as 2 percent to near $49 a barrel on the dollar's gains and caution on the pace of any global economic recovery. Gold was little changed at $867.20 an ounce.
(Additional reporting by Satomi Noguchi in Tokyo)
(Editing by Kim Coghill)