Asian stocks rose on Wednesday after reports that Europe was close to bailing out debt-strapped Greece, coaxing investors back to riskier assets, though uncertainty kept a lid on the euro.
Deteriorating confidence in the ability of Greece, Portugal and Spain to finance growing fiscal shortfalls has spooked financial markets for weeks and knocked the euro to its lowest since May 2009, just below $1.36.
European governments have agreed in principle to help Greece, German coalition sources told Reuters on Tuesday. However, a German government spokesman later dampened hopes by saying a decision had not yet been reached.
In addition, it was not clear whether any rescue of Greece would ensure that investors would not just concentrate on the next weak link in the euro zone, or if growing debt problems in Europe in general would impede the global economic recovery.
Certainly there are reports about support for Greece, but nothing concrete has been decided. So while downward pressure has definitely decreased, there's still no real reason to buy, said Hideyuki Ishiguro, a strategist at Okasan Securities in Tokyo.
Following gains of more than 1 percent on Wall Street, Japan's Nikkei share average <.N225> was up 1.1 percent.
Shares of Toyota Motor Co <7203.T> were up 0.6 percent, struggling to rise a second consecutive day after saying it would recall 437,000 hybrid vehicles because of safety issues, the latest in a string of embarrassing and costly product problems.
The latest recall may not be the end of the nightmarish start of the year for the world's biggest car maker. U.S. regulators said overnight they were reviewing complaints of steering problems in newer Toyota Corolla models.
The MSCI index of Asian stocks traded outside Japan <.MIAPJ0000PUS> was up 0.8 percent, with the materials sector leading the way after gains in metal and commodity prices overnight. The index has fallen about 7 percent so far this year amid the broader global market correction, after surging 68 percent in 2009.
Top global miner BHP Billiton
In the currency market, the euro cautiously extended gains to $1.3795, after soaring nearly 1 percent to a high of around $1.3840 overnight of hopes of a rescue package for Greece.
A clear break of the $1.3840-50 area on a chart would pave the way to $1.39 and then $1.3950.
Analysts, however, said sentiment toward the single currency remained broadly negative, and skeptics of a quick solution for Europe's fiscal problems were looking to buy dollars against developed currencies.
We still look for opportunities to buy the U.S. dollar on dips in the short term, as concerns over sovereign debt may continue to support broad dollar strength, Standard Chartered currency strategists said in a note.
Against the yen, the euro was up 0.1 percent to 123.83 yen. The near-term obstacle for the euro was around 124.30 yen.
U.S. oil futures were down 0.3 percent to $73.51 a barrel after an industry group said U.S. crude stockpiles rose more than forecast last week.
The Reuters-Jefferies CRB index of commodities <.CRB> rebounded 1.4 percent on Tuesday, on weakness in the U.S. dollar, after hitting a four-month low on Friday.
Shanghai copper was seen opening higher on Wednesday, fueled by 2.2 percent rise in London metals.
(Editing by Kim Coghill)