Asian shares rebounded on Friday on signs that euro zone officials will soon approve a long-awaited bailout for Greece, and after jobs and factory data pointed to a healthier U.S. economy.
Financial bookmakers expected European stocks to track Asian shares higher, with financial spreadbetters calling the main indexes in London <.FTSE>, Paris <.FCHI> and Frankfurt <.GDAXI> to open up by 0.3 percent to 0.6 percent. <.EU> <.L>
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose as much as 1.4 percent, recovering most of its losses suffered on Thursday when worries about a delay in signing a Greek deal sparked fears of a debt default.
South Korea <.KS11> led the pack, gaining 1.5 percent, as foreign investors returned in full force.
The MSCI's pan-Asia index last stood up 1 percent by early afternoon, heading for a weekly gain of 1.5 percent and a year-to-date rise of more than 13 percent.
Japan's Nikkei <.N225> rallied nearly 2 percent to six-month highs, with exporters and financials leading the gains. <.T>
The markets have returned to a familiar pattern, with surprisingly robust U.S. jobs data and growing optimism over Greece combining to resume the recent rally. There's a lot of excess liquidity still left for shares to digest, said NH Investment & Securities analyst Cho Sung-joon.
The euro traded around $1.3130, above a three-week low on Thursday of $1.2974. Against the yen, it reached a two-month high above 104 yen.
The dollar rose to a 3-1/2-month high above 79 yen on Friday after the U.S. data, adding fuel to its rally triggered earlier this week by the Bank of Japan's policy easing.
Sentiment has brightened to encourage risk taking, said Masayuki Doshida, senior market analyst at Rakuten Securities.
An easy monetary environment continues, with another liquidity injection scheduled later this month from the European Central Bank and expectations that a March default by Greece can be avoided spurring 'risk-on' momentum, he said.
Euro zone officials said on Thursday they were putting the finishing touches to a second bailout deal for Greece for approval on Monday, with a focus on how Greece can prioritise debt repayment and ways to ensure Athens commits to reforms.
Sources also said euro zone central banks had agreed on a Greek bond swap.
The risk of Athens missing a March 20 deadline to pay a 14.5 billion euro bond redemption payment appeared to have eased after a spokesman for the Greek government said on Thursday that Greece expects to begin a debt swap scheme with private bondholders.
The CBOE Volatility index VIX <.VIX>, which measures expected volatility in the S&P 500 index <.SPX> over the next 30 days, plunged about 9 percent on Thursday for its biggest drop since December 9. A drop in the index reflects rising risk appetite.
But some signs of strain remain.
The Markit iTraxx index of credit default spreads for European senior financials, measuring the cost of insuring against a bank defaulting on its debts, has risen by almost 50 basis points in the past 10 days to above 240 bps.
FUNDAMENTALS HOLD KEY
London copper recovered from Thursday's three-week low to rise 1.2 percent to $8,400 a tonne. Spot gold was up 0.2 percent to $1,731 a tonne, rising along with equities.
U.S. crude changed hands around $102.41 a barrel, adding to a six-week closing high of $102.31 the day before.
Brent gained 0.2 percent to $120.32, after settling on Thursday at $120.11, the highest settlement since mid-June, on worries about supply from Iran and the North Sea, where output was expected to dip next month.
Asian credit markets firmed with rising risk appetite, narrowing the spreads on the iTraxx Asia ex-Japan investment grade index by 8 basis points.
Greece is less likely to deliver a scare to markets, which already seem to be pricing in quite a negative scenario, said Barclays Capital in a note, but added that it was difficult to envisage a quick resolution given rising implementation risks and domestic political pressures building ahead of elections.
(Markets) have become more optimistic about the U.S., so a 'growth scare' there could upset market sentiment, it said.
U.S. jobless claims unexpectedly fell last week to a near four-year low, January housing starts came in better than forecast, and the pace of factory activity in the U.S. Mid-Atlantic region gained momentum in February.
(Additional reporting by Joonhee Yu in Seoul; Editing by Kim Coghill)