Gold struck its third straight peak in as many days on Thursday because of its investor appeal as a safe asset while Asian stocks advanced as the appetite for risky assets remained strong despite Wall Street's dip.
The yen extended its fall on increasing market talk that Japan may step up quantitative easing to battle deflation and on hopes authorities may intervene to check its recent gains.
Gold surged to a new high of $1,226.10 an ounce, while the yen extended its losses, falling to 87.77 per dollar, on speculation Japan could be embarking on another round of quantitative easing, while the Japanese Prime Minister's concerns about the currency's rise stoked intervention expectations.
Asian shares were led by strong gains in Japan and South Korea with investors buying metals and consumer discretionary industries while ignoring the broad weakness in U.S. stocks.
As long as growth continues to be healthy and none of the major central banks tighten monitory policy, we think the Asian rally will go further at least in the first half of next year, said Khiem Do, head of the Asia multi-asset group at Baring Asset Management, which oversees $50 billion.
U.S. stock futures were up half a percent pointing to a firm start on Wall Street, and reversing some of Wednesday's losses.
European stock index futures also indicated a firm open, futures for the Eurostoxx 50, Germany's DAX and France's CAC gaining 0.6-0.9 percent.
Japan's Nikkei stock average jumped after the yen's fall boosted exporters and gold's rise propped metal shares, taking the benchmark further above last week's four-month lows.
YEN'S DOWNWARD SPIRAL
The yen continued on a downward spiral after Prime Minister Yukio Hatoyama said the recent rise could not be left alone. There was also rising speculation that authorities could flood the market with funds when the rest of the world was weighing a way out of easy monetary policy.
It fell to as low as 87.93 yen per dollar, with stop-loss sell orders triggered around 87.50. The weakness adds to its 0.9 percent loss in the previous session -- the largest daily drop in six weeks.
The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose 0.77 percent.
There is a lot of interest in emerging market equities and a lot of money is coming out of Europe and the U.S., said Alex Boggis, fund manager at Aberdeen Asset Management, which oversees about $240 billion in investments.
People have got the message they want growth and protection against a possible U.S. dollar depreciation.
Leading the rise in Asia were materials shares <.MIAPJMT00PUS>, which were up 1.07 percent, and the consumer discretionary sector <.MIAPJCD00PUS>, 1.21 percent higher.
Consumer discretionary, information technology and materials industries are expecting the highest earnings growth rates over the next 12 months with companies in Taiwan expecting the maximum gain, a Thomson Reuters Starmine research report said.
The report is based on latest estimates from top analysts.
Cyclicals including technology, property and materials and consumer discretionary and consumer staples should continue to do well, said Baring's Khiem Do highlighting his preference for industries related to technology, resources and consumers.
In Japan, shares of Mitsubishi Motors <7211.T> soared 17.7 percent to 140 yen after a newspaper report that PSA Peugeot Citroen
The yen and the dollar fell further after Bank of America said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence and trimming safety bids in those currencies.
Analysts expect the U.S. dollar's long-term weak outlook to sustain flows into emerging markets such as Asia ex-Japan.
BNP Paribas said it expects Asia to receive $35 billion in portfolio inflows in 2010, up from $27 billion in 2009, a year during which stocks have posted gains of nearly 70 percent.
Gold should remain a beneficiary of the weak dollar story as the mammoth debt burden facing the United States has investors fleeing to alternative assets.
Inflation does not look like a great possibility in the short term but if the U.S. tries to inflate its way out of its debt issues, then the dollar will weaken and gold will look better than anything else as a real asset, said Aberdeen's Boggis.
(Editing by Jan Dahinten)