Asian shares rose more than 2 percent and the euro steadied Friday on hopes that Greece will abandon a proposed referendum on a European Union bailout, but investors remained cautious over a confidence vote planned in the Greek Parliament.
Greece's abrupt call for a referendum, just days after a deal was struck to save the debt-stricken country from default, sparked panic in global financial markets, prompting EU leaders to talk of a possible Greek exit from the euro zone to preserve the single currency.
Greek Prime Minister George Papandreou bowed to Cabinet rebels Thursday and agreed to step down and make way for a negotiated coalition government if his Socialist lawmakers back him in a confidence vote Friday, raising hopes for a political consensus on the EU rescue framework.
The market regained some calm but uncertainty remains over the outcome of today's confidence vote, said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.
Uncertainty at this point entails risks, as it means delays in the efforts.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> jumped 2.7 percent, led by the materials <.MIAPJMT00PUS>, energy <.MIAPJEN00PUS> and technology sectors <.MIAPJIT00PUS>, which all gained more than 3 percent.
Japan's Nikkei <.N225> share average rose 1.3 percent.
Investors may be hunting for a bargains, but underlying concern about whether measures can really be implemented to rescue Greece from its debt crisis remained intact, said analyst Woon Khien Chia of the Royal Bank of Scotland in Singapore.
Nobody wants to take very big positions, she said, adding that even after the basic framework was agreed to rescue Greece, questions have already been raised about who was going to fund the bailout.
Late in October, Euro zone leaders struck a deal with private banks and insurers for them to accept a 50 percent loss on their Greek government bonds under a plan to lower Greece's debt burden, while asking Greece for severe austerity measures.
They also agreed that the European Financial Stability Facility, a bailout fund, would be leveraged to give it firepower equivalent to about 1 trillion euros ($1.4 trillion).
ECB CUT SUPPORTS
Market sentiment was supported by the European Central Bank's surprise rate cut of 25 basis points on Thursday, the first meeting under new President Mario Draghi. Draghi said the euro zone could enter a mild recession later this year.
The ECB's surprise move to cut rates suggested it took a preemptive move as it forecast growth slowdown, which gave a positive surprise to the market, Credit Agricole's Saito said.
The euro steadied against the dollar around $1.38.
Hong Kong's benchmark Hang Seng index <.HSI> jumped 3 percent on Friday, while the iShares A50 China tracker (2823.HK), an exchange-traded fund in Hong Kong that provide outsiders the most direct exposure to mainland markets, hit its highest since mid-August.
Investors' appetite eased for protection in the options market against losses, with the CBOE Volatility index VIX <.VIX> -- a measure of expected volatility in the S&P 500 over the next 30 days often dubbed Wall Street's fear gauge -- falling to 30.50 on Thursday from 32.74 the day before.
The VIX was below 30 for most of the time in the 15 years up to 2008, before being driven close to 90 by the global financial crisis in October that year.
As optimism buoyed riskier assets, Asian credit markets stabilized, with the spreads on the iTraxx Asia ex-Japan investment grade index narrowing sharply by over 20 basis points on Friday. The index is a gauge of investor risk appetite.
Its a bit more positive this morning although headline risks are still alive. Its just one step forward and two steps back, said a Singapore based trader with a European bank.
G20 leaders meeting in southern France will try to look beyond the Greek drama that has shaken their annual gathering and agree on measures that will convince markets the risk of further euro zone contagion can be stemmed.
Global stocks and crude oil rallied on Thursday on rising hopes Greece will abandon the referendum plan, which would reduce the chance of a disorderly default.
MSCI's all-country world index <.MIWD00000PUS> rose 1.4 percent and the FTSEurofirst 300 <.FTEU3> index of top European shares gained 1.9 percent Thursday.