Asian stocks rose on Thursday as China's economic growth accelerated and bellwether U.S. tech and financial firms reported strong results, boosting appetite for riskier assets and putting the U.S. dollar on the defensive.
Japan's Nikkei average <.N225> gained 0.7 percent, while the MSCI index of Asian shares outside Japan <.MIAPJ0000PUS> rose 0.58 percent, near a two-year high.
Shares of energy firms saw some of the strongest gains after oil prices jumped more than 2 percent overnight, boosted by a surprise drop in U.S. crude oil inventories and dollar weakness.
There's probably enough catalysts to keep us moving forward, assuming the earnings results are as solid as they're expected to be, said IG Markets analyst Cameron Peacock in Australia.
China's annual economic growth quickened in the first quarter to 11.9 percent, the fastest pace since 2007, benefiting from a low base of comparison last year and the momentum imparted by massive bank-financed stimulus.
China has largely led a global recovery amid persistent weakness in Western economies, and its voracious demand for raw materials has supported a rally in commodity markets and currencies of resource-rich countries such as Australia.
The data from Asia's largest economy, which beat analysts' expectations, added to speculation that Beijing may be preparing to loosen its tight grip on the yuan currency.
While its robust growth supports the case for tighter monetary policy to avert overheating, some analysts said an easing of inflation in March may convince policymakers to hold off on interest rate hikes and focus on the yuan instead.
For those who were looking for an imminent interest rate adjustment, this firmly skews the next policy move toward being a yuan revaluation, said Glenn Maguire, chief Asian economist at Societe Generale.
Any move by China to revalue its currency is likely to give a further boost to Asian currencies and weigh on the U.S. dollar.
Economic data from the United States and Japan also bolstered hopes that the global recovery will prove to be sustainable.
U.S. stocks rose for a fifth straight day overnight after March retail sales beat expectations and as Intel Corp
More stocks hit a 52-week high on the New York Stock Exchange than on any day since the end of December 2003. The Nasdaq recorded its greatest number of 52-week highs since January 2004. There were some concerns earlier this week about earnings of U.S. financial companies, including JPMorgan, and the market is now receiving a lift after the actual report and strong gains in financial shares overnight, said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.
In Japan, a Reuters poll showed companies seemed to have shaken off their long gloomy spell as robust exports continue to drive the economy's recovery, though firms remained cautious.
Manufacturers' sentiment moved out of negative territory for the first time in two years thanks to solid exports to China and the rest of Asia, while service-sector firms were the least pessimistic since October 2008.
The increase in investors' appetite for riskier assets and speculation about a Chinese move on the yuan prompted investors to move into commodity currencies and out of the U.S. dollar.
The Australian dollar edged up to $0.9361, from $0.9347 on Wednesday when it rallied nearly 0.7 percent. China is the single largest buyer of Australia's commodity exports.
Investors have already been trimming long positions in the U.S. dollar after Singapore effectively revalued its currency earlier this week, fanning expectations that more Asian countries will allow their currencies to appreciate.
The dollar index against major currencies <.DXY> was flat at 80.196, but a break below 80 risks a test of support near 79.50/55--its March 17 low.
We were looking for U.S. growth to surprise on the upside but that is now mostly priced in, Westpac said in a note. The DXY looks like a 79-82 range trade for the time being but we still strongly favor a topside break.
Adding to the dollar's soft tone was Federal Reserve Chairman Ben Bernanke comments that U.S. interest rates will stay low for some time, reducing its yield appeal.
The dollar edged up against the yen to 93.37 yen, from 93.19 yen late in New York.
The euro edged up to $1.3660, having risen nearly 0.4 percent on Wednesday. But increased skepticism about an EU-IMF bailout package for Greece is likely to limit its gains.