Asian stocks scaled a 10-month peak on Tuesday after upbeat company earnings reassured investors that a U.S. economic recovery is taking root, prompting a further shift into riskier assets and away from the safe-haven dollar.
Gains were kept in check as some market players booked profits on the run-up in equities and higher-yielding currencies, knocking the Australian dollar down from a five-week high against the beleaguered U.S. currency.
Investors showed little reaction to comments from Federal Reserve Chairman Ben Bernanke, who wrote in the Wall Street Journal that accommodative policy would be warranted for an extended period.
But Bernanke, who delivers his twice-yearly testimony to Congress later in the day, also said the Fed will need to tighten policy to prevent an inflation problem from emerging once it becomes clear that an economic recovery is taking hold.
It doesn't look like he's sounding too anxious or urgent about removing excess stimulus from the system, said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.
Stocks around the world have gained this month as major banks show more signs of healing from the credit crisis and companies are more optimistic about demand improving later this year and in 2010.
Analysts said the last-minute deal by CIT Group
News of the CIT deal and positive economic data from the United States helped markets start off quite strong, said Lee Sun-yeop, a market analyst at Goodmorning Shinhan Securities in Seoul. Combined with a positive earnings outlook and growing upward momentum, we are seeing shares hitting a new high for the year.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> edged up 0.1 percent after pushing up to 344.65 in early trade, the highest since late September when equity markets were crumbling after the collapse of U.S. investment bank Lehman Brothers.
So far this year the MSCI benchmark for Asia has risen 39 percent, rebounding from a record 53 percent plunge last year and outperforming the gains in developed markets.
Equity indexes were mixed across the region, with Hong Kong's Hang Seng <.HSI> dipping 0.5 percent and South Korea's KOSPI <.KS11> edged up 0.4 percent.
On Monday the U.S. S&P 500 <.SPX> climbed 1.1 percent, while brokerage upgrades of technology bellwethers lifted the Nasdaq <.IXIC> to a ninth straight daily gain -- the longest winning streak since 1998.
Japan's Nikkei average <.N225> rose 1.4 percent, getting a lift from the renewed optimism on the economic outlook as the market reopened after an extended weekend.
An expected dissolution of the Japanese parliament later in the day had little impact, the first step toward a national election expected on August 30.
Cabinet members signed off on Prime Minister Taro Aso's plan to dissolve parliament's lower house on Tuesday. Market analysts said the political developments were unlikely to be a strong trading factor for the day.
The dollar steadied after hitting a six-week low against a basket of major currencies, beaten down as investors have favored emerging market stocks and bonds over the safety of the U.S. currency.
The dollar index, a gauge of its performance against six major currencies, was little changed at 78.880 <.DXY>.
The euro was also steady at $1.4215 after shooting higher the previous day when a break above the top of its six-week range against the dollar triggered buying tied to options, traders said.
The euro is now poised to make a run at its peaks hit in May around $1.4335, which form a double-top on the charts and should prove tough resistance.
Against the yen, the dollar dipped 0.3 percent to 93.90 yen.
Bonds were under pressure again as stocks kept adding to gains. The benchmark 10-year Japanese government bond yield rose 3.5 basis points to 1.350 percent, up from a low of 1.270 percent hit earlier in the month.
(Additional reporting by Jungyoun Park in Seoul, Charlotte Cooper and Elaine Lies in Tokyo; Editing by Tomasz Janowski)