The euro dipped on Thursday but could head higher if Spain and Italy, like Portugal, also find decent demand for their debt, while U.S. oil prices crept up to $92 a barrel, potentially straining consumers who are already watching food prices climb.

Promises from China and Japan to support Europe through its fiscal crisis have also helped to keep the euro around $1.31 and the closeout of small bets against the euro could push it up above $1.32 in the near term, particularly as global equity markets hit two-year highs.

The euro zone's financing troubles have generally dragged on investors' appetite for risk taking, though signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, may put risk seeking back in play.

Japan's Nikkei share average <.N225> rose 0.7 percent to an eight-month high, with stocks of large exporters among the biggest boosts to the index.

The strong bond auction in Portugal has calmed the markets and with no major negative factors in sight, foreign funds continue buying lagging banking and property shares, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, in Tokyo.

Japanese bank stocks outperformed for a second day as foreign investors kept loading up on previously underweighted financials. Shares of Mitsubishi UFJ Financial Group <8306.T>, Japan's biggest bank by assets, gained 1.3 percent.

HSBC Holdings <0005.HK> was in focus on Thursday after its London-listed shares climbed 3.8 percent overnight, the biggest single-day gain since August 2010.

The Hong Kong-listed shares of the company were up 1.2 percent and have risen 8.5 percent so far in January on heavy trading volumes, as investors bet the bank would catch up with the share price gains of rival Standard Chartered Plc <2888.HK>.

The MSCI index of Asia Pacific shares outside Japan was up 0.6 percent <.MIAPJ0000PUS>, within striking distance of a 2-1/2-year high that has been tested twice in the past two months.

The materials and financial sectors led gains in the MSCI index.

The MSCI all-country world index edged up to the highest since September 2, 2008 <.MIWD00000PUS>, having risen 20 percent since September 2010, when investors began to factor in the impact of further monetary easing by the Federal Reserve.


The euro was holding at $1.3100, down 0.2 percent on the day but up around 1.8 percent so far on the week.

Traders may take a shot at the low from January 3 at $1.3248 in the next few sessions, though that probably depends on how well Spain's 3 billion euro two-year bond auction and Italy's combined 7 billion euro debt auctions go.

We can't help feeling that the bounce in sentiment will prove temporary and whilst it may continue over the short-term with attendant upside risks for the euro, it is unlikely to last for long unless concrete measures are unveiled by the authorities in Europe, Mitul Kotecha, global head of foreign exchange strategy with Credit Agricole CIB in Hong Kong, said in a note.

For now, Portugal's successful fund raising in the bond market, and at a lower cost for its 10-year debt issue, along with encouraging euro zone industrial production data, helped put a spring in the step of the common currency.

U.S. crude oil prices edged up 0.1 percent, to $91.94 a barrel after crude stocks in the world's largest oil user fell more than expected and a cold weather stoked demand for heating oil in the U.S. Northeast.

Brent crude for February delivery was up 0.2 percent to $98.35 a barrel, closing in on the milestone of $100.

Food inflation remained a global concern, with no apparent let up in climbing prices.

U.S. corn futures jumped 1.5 percent on Thursday, while soybeans rose nearly 1 percent to their highest in almost 2-1/2 years, buoyed by a surprisingly deep cut in the U.S. Agriculture Department's forecast for U.S. corn and soybean stocks.

(Additional reporting by Antoni Slodkowski in TOKYO; Editing by Kim Coghill)