Asian shares jumped on Thursday, buoyed by strong U.S. earnings and increasing global recovery hopes after China's economy grew faster than forecast in the second quarter.
But the New Zealand dollar fell after rating agency Fitch revised the outlook on New Zealand's AA-plus long-term credit rating to negative, sending the kiwi down against both the dollar and the yen.
Tokyo shares hit a one-week high before paring gains, and shares elsewhere in Asia-Pacific powered to their highest in a month. The yen rose broadly as traders took profits in other currencies and oil steadied above $61 a barrel.
European shares were expected to open mixed as investors awaited U.S. and European earnings.
Markets were keeping a wary eye on the fate of CIT Group Inc
The Fitch move on New Zealand's rating, which cut the outlook to negative from stable, took some in the markets aback.
This was a bit of a surprise. It may refocus attention on concerns about sovereign risk that had been receding for a while, said Masafumi Yamamoto, head of FX strategy Japan at Royal Bank of Scotland, referring to sovereign ratings in general.
Coupled with CIT's woes and Standard & Poor's downgrade of California's long-term rating and underlying rating on the state's economic recovery bonds, Fitch's decision may put the spotlight back on credit risks, he added.
But broader markets were buoyed by China's second quarter gross domestic product rising 7.9 percent against the previous year, beating expectations for a 7.5 percent rise, while the world's third-largest economy grew 7.1 percent in the first half against a year earlier.
The news came on the back of a surge in U.S. stocks on Wednesday after the release of data suggesting the recession is abating and results from bellwether Intel Corp
There seems to be no shortage of immediate supportive factors for the market, with the yen weakening further and China's GDP coming in strong, said Tomomi Yamashita, a senior fund manager at Shinkin Asset Management, though he added that investors remain wary about upcoming U.S. earnings.
Asian shares across the region rose 1.3 percent to their highest since mid-June, though they were off earlier highs.
Japan's benchmark Nikkei <.N225> underperformed with a rise of 0.8 percent to 9,344.16 as caution about U.S. earnings pared earlier gains.
Mazda Motor Corp <7261.T> rose 6.2 percent after two sources familiar with the matter said it was in talks with Toyota Motor Corp <7203.T. over Toyota supplying its smaller rival with core components for hybrid vehicles. Toyota gained 0.9 percent.
Australian shares rose nearly 1.8 percent and briefly touched a one-month high as miners rose on firmer base metals prices.
Fitch affirmed New Zealand's sovereign AA-plus long-term foreign currency rating and the long-term local currency rating at AAA, but revised the outlook down from stable, implying a 50:50 chance of a downgrade in the next 12-24 months.
The NZ dollar slid 1.3 percent to $0.6403
The timing of the move took some by surprise given that Standard & Poor's had raised its outlook to stable from negative following the government budget on May 28. But others took it in stride.
It's somewhat surprising that we don't have a worse rating outlook. To have a negative outlook seems reasonably justifiable, said UBS senior economist Robin Clements.
The yen rose, with the euro slipping 0.5 percent to 132.21 yen and the Australian dollar falling 1 percent to 75.01 yen. The dollar fell 0.3 percent to 93.87 yen.
Yields on U.S. 10-year Treasury notes stood at 3.567 percent, down nearly four basis points from U.S. trade but up from a two-month low of 3.26 percent hit on Monday.
September JGB futures fell 0.05 point to 138.59, sliding from a 3-1/2-mth peak of 138.97 hit last week.
Spot gold edged down slightly to 936.60 compared to New York's notional close of $938.45. It jumped to a two-week high the previous day when U.S. consumer prices data stoked fears of rising inflation.
(Additional reporting by Masayuki Kitano and Shinichi Saoshiro in Tokyo; Editing by Tomasz Janowski)