Asian stocks bounced on Tuesday as a rally in U.S. financial shares helped Japan break a long losing streak, while also reversing some of the recent safe-haven rush into the yen and sovereign bonds.
Upbeat news from Singapore also boosted investor confidence, as economic growth in the trade hub climbed 20.4 percent annualized in the three months to June, ending four quarters of contraction.
Analysts said other export-dependent Asian economies were also expected to see improved second quarters, but questioned whether that could be sustained amid still weak consumer demand in the region's major Western markets.
European bourses also looked like enjoying early gains, with Eurostox 50 futures up 1 percent.
British retail sales rose in June and house prices fell at their slowest rate in two years, two surveys showed on Tuesday, in further signs that economy may be bottoming out after the worst downturn in decades. But another report showed Germany is unlikely to see sizeable economic growth in the rest of 2009.
Unease ahead of key data on U.S. retail sales and a slew of U.S. corporate earnings including banking giant Goldman Sachs
Market sentiment has improved slightly compared to a few days ago, but we still need to see the actual numbers of U.S. results, said Mitsuru Sahara, chief manager at Bank of Tokyo-Mitsubishi UFJ.
Japan's Nikkei average <.N225> ended 2.3 percent higher, a welcome break from a string of recent losses <.T>. MSCI's measure of stocks elsewhere in the Asia-Pacific <.MIAPJ0000PUS> rose 2.8 percent.
The gains tracked Monday's 2.5 percent rally in the S&P 500 <.SPX> and owed much to a single banking analyst.
In a change of mood, influential Wall Street analyst Meredith Whitney upgraded Goldman Sachs Group Inc
After a recent bearish run, the market has been looking an opportunity to rebound, and the analyst comments on the financial sector fit the bill, said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo.
Also helping sentiment was a report from the Wall Street Journal that the U.S. government was in advanced talks to help embattled CIT Group
Still, no deal was certain, the WSJ said, and sources told Reuters the Federal Deposit Insurance Corp was opposed to granting CIT access to a government guarantee.
Australian shares <.AXJO> ended up nearly 3.5 percent after a surprisingly strong survey of Australian business conditions. The Aussie dollar got a lift to $0.7856 from the news, which was seen as lessening the need for further cuts in interest rates.
The survey of over 400 firms from National Australia Bank
The tentative pick up in stocks seemed to lessen the need for safe havens like government bonds and the Japanese yen, which eased across the board.
Japanese bond futures slipped, while U.S. 10-year Treasury yields ticked up to 3.38 percent from a two-month low of 3.26 percent touched on Monday.
The dollar firmed to 93.28 yen, after touching a five-month low of 91.73 on Monday. The euro firmed to 130.55 yen, from a trough around 127.95.
The single currency was steady on the dollar around $1.3995, in the middle of a range that has held for over a month. Against a basket of major currencies, the U.S. dollar <.DXY> was down 0.06 percent at 80.083.
Investors are now awaiting data on U.S. retail sales and producer prices later on Tuesday. Sales are seen rising 0.4 percent in June, and by 0.5 percent excluding autos.
We expect most indicators should continue to show less negative to slightly positive growth, reflecting the slow-moving recovery underway, said Merrill Lynch in a note to clients.
(Writing by Wayne Cole; Editing by Kim Coghill)