Asian shares rebounded on Tuesday from a three-session losing streak, while the safe-haven bid on the dollar retreated in moves seen as a momentary reprieve from concerns about the weak outlook for the global economy.
Asian share gains were led by banks, including heavyweight HSBC <0005.HK>, which has taken a pounding on concerns about capital raising and the dire state of the world's financial system.
However, Japan's Nikkei average <.N225> dipped lower to trade close to a 26-year intraday low, led by worries about the global competitiveness of the country's drugs sector following a $41 billion merger in the United States.
Oil prices edged up above $47 a barrel on expectations for more OPEC output cuts and geopolitical concerns after the United States said five Chinese ships, including a naval vessel, harassed a U.S. Navy ship in international waters.
It is hard to think that stocks will turn to an upward trend given the credit situation. The dollar is likely to retain its safe-haven status, said Kazuyuki Kato, treasury department manager at Mizuho Trust and Banking Co in Japan.
But since gains in the dollar have progressed to a considerable degree, the currency will face its peak at some level, he said.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> advanced 1.2 percent after losing 1.7 percent over the previous three sessions.
Those gains helped the dollar retreat against the euro and other major currencies, after it rose last week to a three-year high.
Confidence in policy makers' efforts to revive global economic growth will be key to a sustained rebound in global equities, with key indexes such as the U.S. the Dow Jones industrial average <.DJI> trading at about 12-year lows.
U.S. Treasury Secretary Timothy Geithner said on Monday that the United States has taken more action in recent weeks to tackle its economic problems than other countries have done in years, trying to reassure lawmakers U.S. recovery efforts are on track.
We're doing more in weeks than other countries do in years, Geithner told Reuters after briefing U.S. Democratic lawmakers on the progress of the Obama administration's plans.
SOME LESS PESSIMISTIC
The rise in Asian shares was led by a 2.5 percent gain in Hong Kong stocks <.HSI>. South Korea <.KS11>, Australia <.AXJO>, Taiwan <.TWII> and Singapore <.STI> posted more modest gains.
Banking shares elsewhere also advanced, with South Korea's Woori Finance Holdings <053000.KS> up 6.2 percent.
Though Asia has been spared the sort of writedowns of bad debt seen elsewhere, the global financial crisis is still spreading to regional economies, sparking concerns as companies cut borrowing and struggle to repay business loans.
Among Tuesday's decliners, the Nikkei <.N225> slid 0.7 percent to 7,033.27, weighed down by drugmakers such as Astellas Pharma <4503.T>. The average booked a 26-year closing low on Monday of 7,086.03 and it is hovering just above a 26-year intraday low traded last October of 6,994.90.
Investors are worried the Japanese drugs sector will be less competitive in the global market place after Merck
The dollar gave up some recent gains. The euro advanced 0.2 percent to $1.2637 after touching a three-month low of $1.2457 last week.
Sterling rose 0.3 percent to $1.3815 after falling more than 2 percent to its lowest in more than a month on Monday.
The head of the European Central Bank, Jean-Claude Trichet, said on Monday the global economy was still slowing but that there were signs a turning-point may be near.
We are identifying a number of elements in the global economy ... that are expansionary, said Trichet, who also chairs the Group of 10 central bankers.
We have a number of elements that are suggesting that we are approaching the moment where we would have a pickup.
The yen though continued to suffer on worries about the world's second-largest economy, which data showed on Monday posted its first current account deficit in January in 13 years.
Sterling gained 0.4 percent to 136.64 yen, and the Australian dollar jumped 1 percent to 63.01 yen.
Japanese government bonds edged lower on supply concerns after Japan's finance minister, Kaoru Yosano, said the government would take whatever steps were needed to keep the economy afloat.
June government bond futures fell 0.26 point. The benchmark 10-year-yield rose 0.5 basis point to 1.300 percent, hovering near a three-week high of 1.31 percent reached last week.
In commodity markets, oil prices edged up 12 cents to $47.19 a barrel. Crude was partly supported on expectations that weekly U.S. inventory data due later in the day would show another fall in crude stocks.
Gold dipped about $4 to $916.60 an ounce, retreating further from an 11-month high above $1,000 marked on February 11.