Asian stocks struck a one-month high on Monday as reassurances over the health of the U.S. banking industry sparked a broad recovery in investor appetite for risk, while safe-haven government bonds also gained on hopes for more central bank buying.
European shares were poised to build on their rally with a rise of nearly 1 percent, according to financial bookmakers.
Oil prices tumbled $1.87 a barrel to $44.38 as market players questioned whether OPEC's weekend decision to enforce better compliance on previous supply cuts would be enough to offset the drop in global demand.
Last week U.S. banking giants Citigroup
Reports that the Bank of Japan was considering buying debt to improve bank capital cushions boosted Japan's Nikkei average <.N225> 1.8 percent, lifting it further away from a 26-year closing low hit last week.
Shares of Mitsubishi UFJ Financial Group <8306.T>, Japan's biggest lender, climbed 5.3 percent.
The BOJ was also mulling an increase in its monthly purchases of Japanese government bonds, according to a report in the Nikkei business daily, helping JGBs rise despite the rebound in riskier assets.
There's hope for economic steps by the government at home, said Yukio Takahashi, a market analyst at Shinko Securities.
Outright purchases of government bonds is one of the extreme policy options some central banks, such as the Bank of England, have adopted to buttress hard-hit economies after having already chopped interest rates down to nearly zero.
Over the weekend, finance ministers and central bankers from Group of 20 countries pledged to use their full fiscal and monetary firepower to combat the economic crisis, but decisions taken focused more on money for the IMF and regulating hedge funds.
Federal Reserve Chairman Ben Bernanke said on Sunday that he sees a U.S. recovery beginning in 2010, but risks remained that politicians lacked the will to do everything necessary to fix the fractured financial system.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> rose 1 percent, driven by the jump in financial shares. On Friday the U.S. S&P 500 <.SPX> rose 0.8 percent and 10.7 percent on the week, racking up its third biggest weekly gain since World War Two.
Gains are likely to continue as long as U.S. stocks continue their recovery, said Yoo Soo-min of Hyundai Securities.
The higher-yielding Australian and New Zealand dollars pushed back near a two-month peak against the yen. The Aussie was also near a one-month peak versus the dollar.
With the focus on the U.S. financial system, the daily moves in the S&P 500 are having a big impact across markets. For example, the rolling 90-day correlation between the S&P and Aussie is a positive 70-80 percent -- showing the two tend to move closely together.
The dollar was steady but has lost ground in the past week as investors have reversed some of their safe-haven buying. The dollar edged up 0.1 percent to 98.15 yen, and the Aussie rose 0.3 percent to 64.45 yen.
The yen fell in part on selling by Japanese importers and other corporates. The yen has been whipped around by investor and corporate flows before Japan's business year wraps up at the end of the month.
The revival in risk-taking helped the South Korean won, the most battered of Asian currencies on worries about the country's ability to roll over its foreign debt, surge 3 percent, its biggest daily gain in four months.
In government debt markets, June JGB futures edged up 0.24 point to 138.91, up from a one-month low hit last week. The rise on bonds pushed the benchmark 10-year yield down 2 basis points to 1.295 percent.
U.S. Treasuries retreated. The 10-year note shed 3/32 in price to yield 2.909 percent, up about a basis point from late U.S. trade on Friday.
(Additional reporting by Aiko Hayashi in Tokyo and Jungyoun Park in Seoul; Editing by Jan Dahinten)