Asian shares inched up to a 10-month peak on Wednesday, but gains were kept in check as investors booked profits in the belief that the run up in stocks had become overstretched.
European stocks were set to open higher, with futures on the Dow Jones Eurostoxx 50 up 0.4 percent.
The dollar was stuck near a seven-week low and government bond yields edged higher as portfolio managers kept shifting funds away from safe-haven assets, taking heart from the slew of upbeat earnings reports showing companies starting to bounce back from the deep global recession.
Federal Reserve Chairman Ben Bernanke also reassured investors that the central bank was not about to tighten its ultra-loose monetary policy anytime soon in the first of his two days of Congressional testimony.
But caution is setting in.
We have had a pretty good run-up, and any attempts to rally further would be met by profit taking, said Ben Potter, a research analyst at IG Markets Ltd in Sydney.
Investors have tended to look past some of the negatives from the earnings season, such as declining revenue, to focus on the better-than-expected profits and positive outlooks due in part to aggressive cost-cutting.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> edged up 0.5 percent and reached its highest level since late September.
Upward earnings revisions have helped stocks extend their winning streak. According to data from Thomson Reuters I/B/E/S, the one-month change in earnings estimates one-year ahead on the MSCI APXJ is running at 1.53 percent, the highest in three years.
Asia equity analysts at Credit Suisse said South Korea's KOSPI was among the regional markets seeing the biggest upward revisions to 2009 consensus earnings but said technology shares may not have as much value now as the consumer cyclical, energy and material sectors.
The KOSPI <.KS11> lagged with a slight rise of 0.3 percent.
Shares of LG Electronics <066570.KS> dropped and limited the broader market's advance, with some investors cashing in on their 75 percent surge so far this year even after the world's No. 3 mobile phone maker blew past expectations for second-quarter profit.
QUICK OR GRADUAL RECOVERY?
The Shanghai Composite <.SSEC> performed better than other Asian indexes with a gain of 2.2 percent, helped by a jump in oil and coal shares such as Sinopec <600028.SS> on hopes for positive earnings.
Companies tied to renewable energy such as Wuhan Linuo Solar Energy <600885.SS> jumped by the 10 percent daily limit after Beijing announced long-awaited subsidies for utility-scale solar power projects on Tuesday.
Japan's Nikkei <.N225> gained 0.7 percent, with shares of semiconductor wafers rising on a report of higher prices.
At this point, I think most people are expecting an economic recovery. The issue now is just whether they think it will happen quickly or gradually, said Tomomi Yamashita, a fund manager at Shinkin Asset Management in Tokyo.
The boost to risky assets has made investors more comfortable holding corporate debt, driving spreads on benchmark credit indexes to their narrowest levels since the collapse of Lehman Brothers last September.
Asia's benchmark iTraxx index of high-grade corporate credit was quoted at a mid-point of 148 basis points by interdealer broker GFI, its tightest level since August and well off this year's peak near 465 basis points in March.
Indonesia was a bright spot, with its credit climbing as investors have looked past last week's hotel bombings in Jakarta and focused on the bright outlook for the economy and structural reform after the election victory of President Susilo Bambang Yudhoyono.
Jakarta's IDX Composite was flat <.JKSE> but near an 11-month high struck on Tuesday, while Indonesia's credit default swap spreads were quoted at the lowest levels in 11 months.
In currencies, the dollar index was little changed at 78.90 <.DXY> after extending its slide the previous day to a seven-week low of 78.591. The euro dipped 0.1 percent to $1.4200 but held near a one-month high struck on Tuesday.
The dollar woes have underpinned a rebound in gold and commodity prices. Gold edged up 30 cents an ounce to $948.55, just below a five-week high struck last week. U.S. crude oil dipped 40 cents a barrel to $65.21.
In bonds, Treasuries surrendered some of their gains from the previous day when Bernanke's caution on the outlook sparked a strong rally that dragged yields down from a one-month high. Benchmark 10-year notes shed 8/32 in price to yield 3.511 percent, up 3 basis points from late U.S. trade.
(Additional reporting by Elaine Lies in Tokyo and Sonali Paul in Sydney; Editing by Neil Fullick)