Japan's Nikkei average leapt 5 percent and led Asian stocks higher on Friday, propelled by growing investor confidence that large U.S. banks will survive without government takeovers and may even profit.
Major European stocks were expected to rise for a fourth straight day as much as 1.7 percent, according to financial bookrunners, as a wave of optimism about banks gathered momentum.
The Swiss franc fell to a near three-month low against the euro, after its biggest ever one-day drop against the single currency on Thursday on news the Swiss National Bank sold francs to halt deflation.
The move left some analysts wondering if it was the first shot in a currency war for trade competitiveness.
Citigroup Inc told Reuters the bank does not need any more emergency cash from Washington and expects to stay private, while Bank of America said it was profitable in January and February, easing fears about further instability in the banking industry and sparking a rush back into equities.
The economic situation seems to be better than what people were saying at the beginning of the year -- a view that has come about now that it seems that U.S. banks' earnings may not be atrocious, said Masaru Hamasaki, senior strategist at Toyota Asset Management in Tokyo.
Yet for every piece of news that improved investor confidence, there was another that left questions about the sustainability of the market rebound.
For example, Wall Street chalked up its best three-day run since November after Standard & Poor's raised its outlook on General Electric Co's credit ratings to stable from negative, though it stripped the company of its AAA status.
On the other hand, Berkshire Hathaway, billionaire investor Warren Buffet's conglomerate, lost its AAA rating and has a negative outlook from Fitch Ratings.
Tokyo's Nikkei climbed 5.1 percent, and posted its biggest weekly gain of the year. Shares of Japan's top bank Mitsubishi UFJ Financial Group climbed 5.8 percent.
The MSCI index of Asia Pacific stocks outside Japan rose 3.2 percent, maintaining this week's up trend and hitting its highest level in about two weeks. The materials and financial sectors were the biggest boosts.
Bank stocks were also the prime movers behind the 3.6 percent rise in Hong Kong's Hang Seng index HSBC rose 3.5 percent, as investors bought back the beaten down shares after an $18 billion rights issue.
Comments from Bank of America, Citigroup and JPMorgan this week have put downward pressure on the most widely watched gauge of market volatility, the Chicago Board Options Exchange's volatility index, or the VIX.
The index closed just above its 200-day moving average on Thursday, and has not closed below it since September 2008.
AFTER SWITZERLAND, IS JAPAN NEXT?
While equity markets were buzzing about banks, currency markets were focused on the aftermath of unexpected actions by the Swiss National Bank, as more central banks turn to unorthodox measures to support their economies.
The Swiss National Bank stunned markets overnight with intervention to weaken the Swiss franc, an interest rate cut and plans for outright purchases of franc-denominated debt as it forecast a deep recession.
The euro stood up 0.4 percent on the day against the Swiss franc to 1.5380 francs near a three-month high. The U.S. dollar climbed 0.3 percent to 1.1888 francs
The dollar was steady against the yen at 97.56 yen
The SNB's move has also started a guessing game of which country might follow suit. Some analysts pointed at the possibility of Japan, which last intervened in currency markets five years ago, though others dismissed such an idea.
Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great. The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy, Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co, said.
Gold prices slipped in the spot market to $924.50 an ounce, as dealers took profits on a 2 percent rise overnight.
However, concerns that more central banks will intervene to weaken their currencies as well as the continued buildup of holdings in the world's largest gold exchange traded fund suggested a rising price trend would continue.
Chinese Premier Wen Jiabao said he had worries about the security of Chinese assets in the United States, comments that helped to push down U.S. Treasuries.
The yield on the benchmark 10-year note ticked up to 2.89 percent from 2.88 percent late in New York.
U.S. crude futures dipped back under $47 a barrel after rocketing 11 percent higher overnight following better-than-expected U.S. retail sales data for February. Crude for April delivery slid 0.9 percent to $46.60 a barrel.
(Additional reporting by Aiko Hayashi and Charlotte Cooper in TOKYO; Editing by Kim Coghill)