Asian shares rose on Wednesday as upbeat U.S. economic data boosted investors' risk appetite, while reduced expectations for further monetary easing by the Federal Reserve underpinned the dollar.
The dollar eased from a seven-week high against a basket of major currencies of 80.320 <.DXY> hit on Tuesday, but hit a fresh 11-month high of 83.21 yen.
An improved economic outlook propelled U.S. equities to multi-year highs, with the Standard & Poor's 500 Index <.SPX> closing at its highest level since June 2008, while the Dow Jones industrial average ended at its highest since December 2007.
The MSCI Asia Pacific ex-Japan index <.MIAPJ0000PUS>, carrying the momentum from overnight, rose 1 percent, while Japan's Nikkei average <.N225> jumped 2 percent. <.T>
Australian shares rose 1.1 percent to a two-week high, driven by top miners and banks.
The markets do run very much on confidence and at the moment, that's improved greatly. The international markets, in particular Wall Street, have been having a nice rally, said Grant Williamson, a partner at New Zealand brokerage Hamilton Hindin Greene.
That's bringing investors back into the local market and pushing the prices up, he said.
The U.S. central bank slightly upgraded its economic outlook on Tuesday, saying it expects moderate growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate remains elevated.
U.S. retail sales posted their largest rise in five months in February, data showed on Tuesday, reflecting growing confidence by Americans to purchase goods.
In Europe, Germany's ZEW economic think tank's monthly sentiment survey jumped in March to its highest level since June 2010, confirming hopes that Europe's largest economy has recovered from a weak patch.
But the dollar's strength undermined the euro, which hovered near a one-month low of $1.3052 (8318 pence) hit on Tuesday. Gold edged higher on bargain hunting following Tuesday's 2 percent drop in prices, but a firmer dollar capped the upside. Spot gold was up 0.1 percent to $1,676 an ounce.
ZEW, equities, GDP: http://link.reuters.com/cag54s
Components of U.S. GDP: http://link.reuters.com/fan36s
U.S. retail sales: http://link.reuters.com/dew96s
Brighter economic conditions in the U.S. raised hopes for stronger demand in oil and lifted prices.
Brent April crude eased 0.2 percent to $126 a barrel after settling on Tuesday at the highest close since April 8, 2011. U.S. crude held steady around $106.70 a barrel.
Asian credit markets firmed, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by about 7 basis points.
Reflecting improved sentiment, the VIX index <.VIX>, which measures expected volatility in the Standard & Poor's 500 index <.SPX> over the next 30 days, plunged below 14 on Tuesday to its lowest since mid-2007.
The current levels are near a major support base, which has caused the VIX index to rebound sharply and trigger turmoil in markets. But that is not necessarily a reason to look for an immediate turnaround in the stock market, analysts said, meaning there may be more room for equities to rise.
With U.S. authorities taking aggressive measures to safeguard growth and the nation's financial system after the collapse of Lehman Brothers in late 2008, the capital positions of U.S. banks have improved substantially since then.
Most of the largest U.S. banks passed their annual stress test, the Fed revealed in an earlier-than-expected release of the results, which mean the institutions are more resilient against financial shocks.
(Additional reporting by Miranda Maxwell in; Melbourne and Reuters FX analyst Krishna Kumar in Sydney; Editing by Richard Borsuk)