Asian stocks rose on Friday as investors bought shares that stood to benefit the most from an expected global recovery, but still looked set to post their biggest weekly decline since March on worries equity markets have risen too far, too fast.
Investors are still looking to buy riskier assets after a leading indicator of Japan's economy, one of the hardest hit in Asia, was not as bad as expected.
The data supported a theme in regional data that companies are replenishing deleted inventories as orders trickle in and the sharp decline in Asian exports is slowing.
But consumer demand in the United States and Europe remains weak, and a sustainable global recovery is unlikely until confidence in those major markets returns.
Oil prices ticked higher, though were having difficulty hurdling $60 a barrel, especially after the International Energy Agency said on Thursday global demand for crude will reflect the sharpest decline this year since 1981.
Japan's Nikkei share average <.N225> rose 1.7 percent, with a 6 percent gain in Sony Corp stock <6758.T> among the biggest boosts to the index after the company forecast a smaller-than-expected annual loss.
Despite a series of dismal earnings this time around, a sense of relief has spread in the market that nothing worse will likely come out at least until April-June earnings announcements, said Fumiyuki Nakanishi, a manager at SMBC Friend Securities in Tokyo.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> was up 2 percent on the day. The materials and technology sectors were the largest gainers, while utilities rose just 0.4 percent.
The index was down around 2.7 percent for the week and set to post its biggest weekly decline since early March, as economic data reminded investors that the road to recovery is likely to be a long and painful one.
However, it is still up 41 percent since March 9, when the global equity rally began.
The U.S. dollar was steady against the euro and yen and was struggling to climb into the black for the week.
The ICE futures U.S. dollar index <.DXY>, which tracks the currency's performance against a basket of six major currencies, stands to post its fourth weekly decline, as investors increasingly shift to higher-yielding currencies.
In the last week, emerging market equities and bonds have been the biggest beneficiaries, with institutional investors apparently unperturbed by a rapid rise in valuations.
Institutional investors are not about to change course or U-turn, they are still backing the rally, said analysts with State Street Global Markets in a note that track 15 percent of the world's tradeable assets.
Flows do not suggest that investors are nervous that prices have gotten ahead of themselves. If anything, the opposite is true, they said.
The growing willingness of investors to take bigger risks for the prospect of higher returns is dependent to some degree on a steady diet of positive economic surprises. Negative ones, like lower than expected U.S. retail sales this week, dent confidence.
The New Zealand dollar tumbled 0.6 percent against both the U.S. dollar and the yen after data showed retail sales volume falling by the most on record.
U.S. crude for June delivery was trading around $58.70 a barrel, largely unchanged on the day. Oil dealers were caught between bullishness based on rising equity markets and uncertainty about the outlook for fuel demand.
(Additional reporting by Aiko Hayashi in Tokyo)
(Editing by Kim Coghill)