Asian shares rose to a two-month high and the euro firmed on Thursday after news that the International Monetary Fund was seeking to boost its resources to tackle the euro zone debt crisis alleviated worries about Europe's funding difficulties.
Smooth debt sales by Portugal and above-estimate earnings from Wall Street powerhouse Goldman Sachs Group Inc
The MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> inched up 0.5 percent to a two-month high, while Japan's Nikkei average <.N225> opened up 0.5 percent. <.T>
News of the IMF expanding its resources to $1 trillion eases market worries about the European situation and the improving U.S. economy may help investors shake off their risk aversion, said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.
The IMF is seeking to more than double its war chest by raising $600 billion in new resources to help countries deal with the fallout of the euro zone debt crisis, but the United States and other countries are throwing up roadblocks.
U.S. stocks jumped to their highest since July on Wednesday, with the benchmark Standard & Poor's 500 Index <.SPX> closing above a key resistance of 1,300.
Goldman Sachs shares rose about 7 percent as its earnings exceeded analysts' expectations.
Data showing U.S. homebuilder sentiment unexpectedly jumped in January to its highest level in 4- years also lent support.
Greece, striving to avoid bankruptcy by maintaining talks, kept hopes alive that a deal could be struck to grant the cash-strapped country much-needed funds, although the uncertainty surrounding the negotiations remained a big risk to markets.
International creditors and the Greek government are meeting over the interest rate that Athens will offer on new bonds and its plan to enforce private investor losses.
Investors will also face more tests to their risk tolerance later on Thursday when Spain and France tap the markets with longer-dated debt offers.
So far, debt sales in the euro zone have gone without a major hitch in the wake of Standard & Poor's mass downgrade of euro zone sovereigns last Friday.
Portugal on Wednesday managed to sell all of its planned issuance of 2.5 billion euros of treasury bills, while Germany's auction of two-year bonds drew strong demand.
Portugal is the only country in the euro zone, apart from Greece, that is rated at junk level by all the major rating agencies.
The euro was up 0.1 percent at $1.2866, moving further away from $1.2624 hit last week, its lowest since late August 2010.
The recent euro price action indicates how vulnerable the market is to short-squeezes on the back of positive euro zone news flow, analysts at BNP Paribas wrote in a client note.
But given that several risks lie ahead, investors are likely to view this current short squeeze as an opportunity to re-enter short euro positions, they said.
The tightness in the dollar-funding market has eased in recent days as ample funding operations from the European Central Bank removed fears of an imminent credit crunch among euro zone banks, reducing the safe-haven demand for U.S. Treasury bills.
On Wednesday, the U.S. Treasury sold $30 billion of one-month bills at an interest rate above zero for the first time in seven weeks.
Asian credit markets were calm, with spreads on the iTraxx Asia ex-Japan investment grade index barely changed from Wednesday.
(Additional reporting by Dominic Lau and Mari Saito in Tokyo and Ian Chua in Sydney; Editing by Muralikumar Anantharaman)