Asian shares extended their rally on Monday and riskier assets such as the euro held on to recent gains, but warnings about an impending pullback are growing amid weak corporate results and views that any global recovery will only be gradual.

For now, traders focused on a smaller-than-expected number of job losses in the United States that reinforced expectations that the global economy, while still weak, may have hit bottom. The data also helped steady oil prices at near a 6-month high above $58 a barrel on Monday.

The rally in U.S. banking shares after the release of results of stress tests in the sector is also supporting expectations that conditions in the beleaguered U.S. financial system are improving.

Risk premiums in Asian credit markets have plunged, in a catch up to a spectacular equity rally that has sent the MSCI's index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> up 52 percent since their post-financial crisis low hit in early March.

But some analysts are warning markets may be due for a pullback, given that corporate results remain weak, as seen by the steep loss announced by Toyota Motor Corp <7203.T> on Friday, while any recovery in the global economy is unlikely to be swift.

It is hard to see where the good news will come from going forward, said Calyon analysts in a daily note to clients.

The worst is likely over from an economic standpoint but less negative is far from positive and at best we will see a stabilization in economic conditions by year end before a gradual turnaround at the turn of the year.

The MSCI regional stock index not including Japan gained 0.4 as of 0225 GMT after having gained in each of the previous five sessions. Current levels are still some 50 percent below the record high for the index hit in early November 2007.

But Japan's Nikkei average <.N225> fell 0.7 percent, weighed down by a 5 percent plunge in shares of Toyota after the auto maker forecast a bigger-than-expected $8.6 billion annual loss after the close of markets on Friday.

The market is finding it hard to keep surging after rising some 30 percent from a March low. There's also a torrent of earnings reports this week in Japan and that's keeping trade in check, said Kenichi Hirano, operating officer at Tachibana Securities in Japan.

Among other major indexes, Australian shares <.AXJO> fell 0.5 percent, but stocks in Hong Kong <.HSI> and Shanghai <.SSEC> rose.

WORST OVER?

Helping inspire investors was data on Friday showing U.S. employers cut a smaller-than-expected 539,000 jobs in April, although the unemployment rate soared to 8.9 percent from 8.5 percent in March, the highest since September 1983.

The shift toward risk has been especially evident in regional credit markets where the cost of insurance against defaults have fallen sharply, indicating increased confidence especially in high-yield.

The Asia iTraxx index of junk bonds outside Japan has tumbled to below 800 basis points from the 1,200-1,300 points just at the end of March when the market was still suffering from months of little to no liquidity.

Still, only higher-rated Asian issuers have been able to sell debt this year, indicating some caution on the part of investors.

Other markets are showing signs of improved demand for risk. Safe-haven demand for the dollar has waned, with the U.S. currency index <.DXY> on Monday holding close to a four-month low set on Friday.

The New Zealand dollar climbed 0.4 percent to $0.6080, its strongest in nearly five months, and the Australian dollar gained to hit a seven-month peak at $0.7714 before slipping to $0.7655.

The euro was steady at $1.3630 after brushing a seven-week high at $1.3660 on trading platform EBS.

Oil has also benefited from the improved confidence about the global economy, sending futures prices to a six-month high above $58 a barrel, up by around 70 percent from February lows below $34.

On Monday, U.S. crude futures fell 53 cents to $58.10.

Still, analysts are also warnings of a possible pullback, especially in light of signs of rising inventories.

Oil prices are driven by perceptions that the economic outlook is less pessimistic that previously thought. But the growth numbers we could be seeing from developed economies may not justify such price levels, said David Moore, a commodities strategist at Commonwealth Bank of Australia.

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