Asian shares rose on Wednesday, but gains were capped by a cut to Spain's sovereign credit rating from Moody's Investors Service that kept investors' risk appetite in check.

A rise in U.S. stocks and a report that Europe will strengthen the region's rescue fund helped improve sentiment, with spreads over a key Asian credit default swaps index narrowing several basis points.

But bearish technicals remained in place to suggest investors were still wary about buying riskier assets.

It's a familiar pattern these days, to sell stocks whenever there's bad news from Europe and buy them back whenever there's good news, but investors are getting tired of it, said Kenichi Hirano, operating officer at Tachibana Securities, adding that this was one reason for recent thin trade.

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.5 percent.

The technology sector <.MIAPJIT00PUS> was the exception, bucking the trend and falling 0.3 percent, due to disappointing earnings results from the world's largest technology company, Apple Inc , which affect Asian suppliers, said HSBC's head of global equity strategy Garry Evans.

Apple shares lost more than 5 percent to below $400 in extended trade after the company reported a rare miss in quarterly results after sales of its flagship iPhone fell short of Wall Street expectations.

The Nikkei stock average <.N225> rose 0.55 percent but Apple's results helped cap the upside. <.T>

European debt woes continued to undermine investor sentiment as they remained cautious about the degree of progress policymakers would offer at a summit on Sunday.

German Chancellor Angela Merkel said Sunday's meeting would be an important step, but warned one summit would not be enough to resolve the crisis, while the EU's trade chief said the euro zone could unravel unless tough action was taken.


A report on Tuesday in Britain's Guardian newspaper that France and Germany had agreed to boost the firepower of a euro zone financial rescue fund to 2 trillion euros was later denied by a senior euro zone source, who told Reuters there had been no mention of such a deal.

Stocks are moving entirely on European politics. The question is can Europe really come up with something, a positive surprise for the market? HSBC's Evans said of the October 23 meeting, adding that Wednesday's rise was mainly driven by laggard buyers who missed the rally last week.

Evans said the key issues were how big a cut to Greece's debt was agreed, a major recapitalization for European banks and a big increase to the bailout facility, and if the markets felt the outcome fell short of their expectations stocks could re-test the lows marked earlier this month.

Moody's, one of the big three ratings agencies, on Tuesday cut Spain's sovereign ratings by two notches, saying high levels of debt in the banking and corporate sectors leave the country vulnerable to funding stresses.

The latest step followed Moody's warning on Monday over risks for France to maintaining its top credit rating.


U.S. banks' earnings underscored the damage inflicted by the global financial turmoil, with Goldman Sachs Group Inc posting its second quarterly loss as a public company on Tuesday as its investment portfolio lost billions of dollars in value.

Bank of America Corp posted a third-quarter profit on accounting gains, but its main businesses struggled as income from lending and investment banking fell.

In Asian credit markets, spreads on the iTraxx Asia ex-Japan investment grade index, a gauge for whether investor risk appetite is returning, narrowed by about 8 basis points, reflecting a rise in equities.

The market feels a little better following the late rally in equities. But right now, it's all about headline watching from Europe. We are also watching the last of the Wall Street bank earnings today with Morgan Stanley's results due later, said a Singapore based trader with an Asian bank.

Other gauges of risk appetite, such as cross-yen currency pairs, showed sentiment remained cautious.

The euro and the Australian dollar failed to break this week's highs against the yen and have fallen back to levels of a week ago.

The euro inched up 0.2 percent from earlier lows against the dollar hit after Moody's cut Spain's sovereign rating.

Gold, traditionally a safe-haven asset, slumped 1 percent in the last two sessions, reviving an inverse correlation to the dollar. Gold recovered from earlier losses and was up 0.25 percent on Wednesday, as the dollar index, which measures its performance against six major currencies <.DXY>, slipped.

A double top on charts, based on the two recent highs formed in late August and early September, prompted technical analysts to turn bearish on gold's near-term outlook.

Oil prices fell, with Brent crude down 0.2 percent to $110.93 a barrel, while U.S. crude futures fell 0.3 percent to $88.02.

(Additional reporting by Lisa Twaronite in Tokyo, Umesh Desai in Hong Kong; Editing by Alex Richardson)