Asian shares climbed to their highest level in seven months on Tuesday on fresh hopes the global recession is easing, and oil hovered at six-month peaks as supply concerns helped buoy up prices.
The dollar struggled, as did the yen, after both tumbled the previous day when a 3 percent gain in U.S. shares boosted investor confidence that the global downturn may be slowing, encouraging buying in commodity currencies and other majors.
In Tokyo, the benchmark Nikkei average <.N225> rose 2.8 percent, with exporters such as Canon Inc <7751.T> helped by the yen's retreat after a top finance ministry official gave a warning about recent yen strength and its impact on the economy.
But analysts were cautious ahead of data on Japan's gross domestic product on Wednesday, which is forecast to show the world's second-largest economy contracted 4.2 percent in January to March, likely its worst quarterly contraction since World War Two.
Nobody really wants to take on new risk ahead of this, said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
At the same time, there's a bit of risk from currency movements, and while the dollar recovered yesterday against the yen on a Japanese official's comments amounting to verbal intervention, these gains are shaky.
U.S. stocks rallied on Monday as better-than-expected results from the No. 2 U.S. home improvement retailer, Lowe's Cos Inc
The Dow Jones industrial average <.DJI> gained 2.85 percent to 8,504.08, the Standard & Poor's 500 Index <.SPX> rose 3.04 percent to 909.71 and the Nasdaq Composite Index <.IXIC> advanced 3.11 percent. S&P futures were steady in Asian trade.
POSITIVE BUT CAUTIOUS
Officials at the World Bank, European Central Bank and U.S. Treasury also offered cautiously upbeat comments, with Treasury Secretary Timothy Geithner saying the U.S. economy had clearly stabilized although he warned things would remain bumpy.
The MSCI index of Asian stocks outside Japan <.MIAPJ0000PUS> hit its highest since October, although India's main stock index <.BSESN> slipped after soaring more than 17 percent on Monday as investors cheered a decisive election victory by the ruling coalition, which could open the way for more economic reforms.
Miners including BHP Billiton
Oil prices steadied around $59 a barrel on Tuesday after climbing on concerns about supply following unrest in Nigeria, where militants threaten to disrupt crude exports, and following a fire in a key U.S. refinery.
The dollar, which hit a two-month low of 94.55 yen on Monday before rebounding more than 1 percent, rose a further 0.1 percent to 96.40 yen but lost ground to the Australian dollar, edging back toward a recent seven-month low.
The Australian dollar also stood within sight of a recent seven-month peak on the yen, underpinned after Reserve Bank of Australia Governor Glenn Stevens said domestic interest rates were pretty low but then also cautioned against expectations for a quick recovery.
The yen remains vulnerable as firmness in stocks bolster risk appetite, with people encouraged to buy higher-yielding currencies such as the Australian dollar against the yen, Tsutomu Soma, a senior manager at Okasan Securities in Tokyo.
The euro and sterling also held on to gains made against both the dollar and yen the previous day, with sterling edging toward its highest since early January against the dollar.
Debt prices retreated with the yield on the benchmark 10-year Japanese government bond edging up 1 basis point to 1.410 percent and the front-month JGB futures contract slipping 0.16 point to 137.15.
U.S. Treasuries were little changed after losses the previous day, with bond investors cautious ahead of housing starts data which could enhance optimism about economic recovery.
Benchmark 10-year notes rose 1 basis point to yield 3.236 percent, after climbing 10 basis points on Monday.
Gold rose on light cash buying to around $920 per ounce, but investors were cautious that improved U.S. housing data could further dull the metal's appeal as a safe haven from volatility.
(Editing by Kim Coghill)