Asian shares hit a month-high on Wednesday, buoyed by optimism about the world's top two economies and relief France is not facing an imminent debt rating cut, but the euro struggled on concerns over euro zone sovereign funding ahead of key auctions.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.2 percent after hitting its highest since December 9, while Japan's Nikkei average <.N225> opened up 0.2 percent following a rise in U.S. stocks to five-month highs on Tuesday on optimism over U.S. corporate earnings.
Australian shares rose and the pan-Asian materials sector <.MIAPJMT00PUS> outperformed for a second day in a row on the back of Tuesday's rally in copper, oil and gold.
With investors as anxious and defensively positioned as they seem still to be, we think that markets remain poised to respond positively to even modestly positive news, even if it merely confirms that the lacklustre base case remains more likely than the various risk cases that surround it, analysts at Barclays Capital said in research note.
U.S. crude futures held steady above $102 a barrel on Wednesday, with oil generally supported by optimism about the U.S. economy, jitters about Iran's nuclear programme dispute with the West and unrest in Nigeria.
The euro fell 0.2 percent to $1.2749 on Wednesday, slipping from the previous day's high of $1.2819 hit after credit rating agency Fitch said it did not expect to cut France's triple-A rating this year.
Fitch may not cut France this year, but there is risk that other rating agencies may downgrade France, so the situation in the euro zone overall has not changed, said Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo. A risk-on sentiment can easily turn around any time.
Tanase said commodity-linked currencies -- such as the Australian dollar -- may be more resilient to risk-off sentiment than the euro as commodities prices were underpinned by supply and other factors.
A bullish demand outlook from top U.S. aluminium maker Alcoa Inc
Although data on Tuesday showed China's exports and imports grew at its slowest pace in more than two years in December, it raised hopes for an monetary policy easing to spur growth, boosting Asian shares on Tuesday.
Later on Wednesday, German Chancellor Angela Merkel and Italian Prime Minister Mario Monti meet to discuss the euro zone crisis, while German annual gross domestic product data will be released, with a 3 percent growth forecast in 2011.
But the primary focus this week is Italian and Spanish debt auctions on Thursday as the two big euro zone economies are seen as most at risk from the crisis.
Asian credit markets were less optimistic on risk than equities, with spreads on the iTraxx Asia ex-Japan investment grade index barely narrowing from Tuesday's levels.
(Editing by Alex Richardson)