Asian stocks edged up on Monday, supported by buying of defensive sectors, while the U.S. dollar rose on caution ahead of a Federal Reserve meeting this week when policymakers may extend programmes to keep borrowing costs low.
Investors were also watching U.S. Treasury yields, which remained in a rising trend, ahead of a record $104 billion in government bond auctions this week to finance massive rescue spending on the economy.
Until markets gain a clearer picture of the Fed's intentions and its views on the nascent recovery, dealers would likely keep asset markets in narrow ranges, taking profits on small price rises.
The Fed needs to find a balance between not killing the recovery through rate hike hopes, while at the same time not over-committing on keeping rates low, Ashley Davies, currency strategist with UBS in Singapore, said in a note.
The ICE Futures U.S. dollar index <.DXY>, a gauge of its value against a basket of six other major currencies, rose 0.2 percent, but it remained in a narrow range carved out in the last month.
The Australian dollar was one of the biggest movers on the day, falling 0.8 percent against the dollar to US$0.7995 and 1.1 percent against the yen to 76.68 yen, as metals prices fell on concern Chinese restocking could soon taper off.
China's imports of refined copper hit a record in May, up from a previous record in April and 258 percent higher than a year earlier. However, speculation spread that the pace of demand was unsustainable, and copper for delivery in three months on the London Metal Exchange fell $159 to $4,866 a tonne.
Equity markets mostly climbed slightly higher, with buying concentrated in the telecommunications, energy and financial sectors.
The MSCI index of Asia Pacific stocks outside Japan rose 0.3 percent <.MIAPJ0000PUS> and was still up 50 percent since a global equity rally began on March 9.
Japan's Nikkei share average <.N225> was hardly changed, with strength in defensive sectors such as food and drugs offset by losses in industrial and technology names. The index is up 38 percent since March 9.
Hong Kong's Hang Seng index <.HSI> rose 1.8 percent, with banks and property-related shares providing the main boost. Chinese banks were boosted by news suggesting credit in China remained abundant.
Centralised infrastructure projects helped generate loan growth of 6.5 trillion yuan ($951 billion) in the first half of this year, the Shanghai Securities News reported.
A FINE BALANCE
U.S. Treasuries were trading largely unchanged, with the benchmark 10-year yield at 3.79 percent.
The Fed will undoubtedly have to strike a fine balance on Wednesday.
While many analysts do not expect the Fed to increase the $300 billion in planned purchases of Treasuries, $200 billion in U.S. agency debt and $1.25 trillion in agency mortgage-backed securities, they also do not think policymakers will break new ground with regard to exiting programmes to keep interest rates low.
The worst of the financial crisis has likely passed, though the direct purchases of government and mortgage-related debt have had a somewhat limited impact, with the 30-year mortgage rate up some 70 basis points in the last month.
Oil fell toward $69 a barrel, extending the previous session's drop of more than 2 percent, as bearish sentiment over gasoline markets in the United States continued to dominate investors' concerns.
In May, the market was pricing in that there would be a gasoline shortage but the latest data is obviously showing that it is not happening, said Ben Westmore, a commodities analyst at the National Australia Bank.
There are also high stockpiles of crude oil, so the general market sentiment is that the balance of demand and supply in the market hasn't improved too much.
U.S. crude for July delivery fell 39 cents to $69.16, after tumbling $1.82 on Friday, posting a weekly loss of more than 3 percent. London Brent crude fell 32 cents to $68.87.