Bank shares powered ahead in Asia on Wednesday to underpin regional markets, while Japanese government bond futures edged up after the Bank of Japan sharply increased the debt it would buy to support the economy.
U.S. Treasuries also rose modestly on speculation the Federal Reserve may take the unorthodox step of buying government debt to push down interest rates as central banks around the world take bold steps to pull their economies out of recession.
Major European stock markets were expected to open as much as 1.4 percent higher, according to financial bookmakers, after data showing a surprising jump in U.S. housing starts pushed Wall Street shares up around 3 percent.
Shares of large Japanese banks outperformed the broad market, supported by a Bank of Japan announcement on Tuesday that it would offer $10.2 billion in subordinated loans to lenders to shore up their capital base as the policy response in the world's second-largest economy continued in steady increments.
The focus is quickly shifting to the outcome of a Fed meeting later in the day and whether U.S. economic conditions warrant additional steps by policymakers to revive lending.
If they can continue to get responses from the market from the other methods they are using in quantitative easing, then they won't buy Treasuries, said Al Clark, head of multi asset, Asia Pacific with Schroders in Singapore.
The minute they buy Treasuries, there is a certain perception associated with that, which might hit the dollar.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> inched up 0.7 percent after climbing more than 7 percent since the month began.
Twenty-day rolling returns on the index of 4 percent exceeded the 0.7 decline on the MSCI all-country world index <.MIWD00000PUS> and the roughly 3 percent yielded by the 10-year U.S. Treasury note.
Japan's Nikkei share average <.N225> closed 0.3 percent higher, posting a five-week high.
Banks were some of the clear outperformers, with Sumitomo Mitsui Financial Group <8316.T> and Mizuho Financial Group <8411.T> both up 3 percent on hopes the global financial system was stabilizing.
Hong Kong's Hang Seng index <.HSI> rose 1.4 percent, propelled by a 5 percent jump in shares of HSBC <0005.HK>.
Bargain hunters and institutional investors have laid waste to short sellers of Europe's largest lender, with the stock up nearly 40 percent since last week when doubts grew ahead of a massive rights issue.
With the average policy rate among central banks in the Group of Seven rich nations at a mere 0.55 percent but economic data continuing to reflect weakness, investors have zeroed in on what other actions policymakers may take to achieve stability.
The Bank of Japan said on Wednesday it would increase purchases of government bonds by almost a third, a move seen supporting government plans for more spending to cushion the country's worst recession since World War Two.
The 10-year Japanese government bond future rose 0.3 point following the BOJ move, while in the cash market the 10-year yield was virtually unchanged on the day.
U.S. Treasuries crept higher as some dealers bet the Fed would lean closer to buying long-dated government debt to pull down interest rates, such as for mortgages, following a similar move by the Bank of England earlier this month.
The yield on the benchmark 10-year note ticked down to 2.99 from 3.0 percent overnight in New York. Since the beginning of the year, the yield has risen some 75 basis points but has stopped cold at around 3 percent.
Uncertainty about what the Fed and other policymakers are willing to do has kept investors cautious about diving back into riskier fixed-income products or straying too far from long-maturity government debt.
Having lowered interest rates aggressively, authorities are now turning to less conventional measures such as quantitative easing. The extent and timing of the positive impact of this policy on the economy is not yet known and the short-term effect on markets may be heightened volatility, said Quentin Fitzsimmons, a fund manager at Threadneedle in London in a note.
The euro held close to a recent one-month high on the dollar and briefly forged an 11-week peak against the yen, as increasing tolerance of risk among investors inspired them to leave behind currencies associated with relative safety.
The euro was up 0.3 percent on the day at $1.3050 and hovered below Monday's five-week high of $1.3072.
The euro hit its highest since late December at 128.83 yen in early Asian trade but then cut gains to trade up 0.2 percent at 128.53 yen.
Gold fell 0.5 percent to $908.80 per ounce in the spot market, still vulnerable to bouts of profit taking as a global equity market rally remained alive.
U.S. crude for April delivery fell 1.2 percent to $48.57 a barrel after gaining 2.9 percent overnight after U.S. housing market data showed the biggest monthly gain in starts since 1990.
(State of play in Asian stock markets, click <0#.INDEXA>))
(Editing by Neil Fullick)