Asian shares climbed to their highest level in seven months on Tuesday on fresh hopes the global recession is easing, while oil hovered at six-month peaks as supply concerns helped buoy prices.
The dollar struggled, as did the yen, after both tumbled the previous day when a rally in U.S. stocks showed risk appetite was reviving and investors felt confident enough to buy commodity-related currencies and other riskier majors.
European stocks were set to gain, with futures for the Eurostoxx 50 rising 1 percent and for Germany's DAX up 0.9 percent.
Hopes are growing that the macro economy is gradually recovering. It's clear that the economic free-fall phase is now over, said Junichi Misawa, a senior fund manager at STB Asset Management in Tokyo.
Japan's benchmark Nikkei average <.N225> closed up 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.
Data on Japan's gross domestic product due on Wednesday is forecast to show the world's second-largest economy contracted 4.2 percent in January to March, which would be its deepest quarterly contraction since World War Two.
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 on Tuesday.
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> rose 3 percent to its highest since October.
Miners including BHP Billiton
In India, the main stock index <.BSESN> rose 2 percent, building on gains of 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.
U.S. crude futures topped $60 a barrel after settling at a six-month high on Monday on supply concerns 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 held on to gains made against both the dollar and yen the previous day as sterling hit its highest level since mid-Decmber.
Debt prices retreated with the yield on the benchmark 10-year Japanese government bond edging up 2 basis points to 1.420 percent and JGB futures slipping 0.14 point to 137.17.
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 about 2 basis points to yield 3.250 percent, after climbing 10 basis points on Monday.
Gold rose on light cash buying to top $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)