Asian stocks climbed to an 11-month high on Tuesday on hopes a V-shaped recovery may be forming in the United States, while the Australian dollar hit its highest since late September after solid housing and retail sales data.
The batch of economic reports increased speculation the Reserve Bank of Australia at a policy meeting later in the day will indicate a shift away from its rate cutting bias, and express more optimism on the economy, weighing on government bonds.
Corporate results also inspired optimism. Shares of HSBC <0005.HK>, Europe's largest lender, climbed 8 percent after first half profits were cut in half compared with a year ago but still beat analysts' forecasts, spurring a wave of brokerage upgrades.
A further improvement in economic indicators around the world and stronger-than-expected corporate earnings are giving a further boost to global stock markets, including Japan, said Yumi Nishimura, deputy general manager at Daiwa Securities SMBC in Tokyo.
Japan's Nikkei share average rose 1.1 percent to a 10-month high, driven by technology-related stocks. Toyota Motor Corp <7203.T>, whose shares gained 0.5 percent, will report quarterly results later in the day.
The MSCI index of Asia Pacific stocks outside Japan also climbed 1.1 percent <.MIAPJ0000PUS>, with the materials sector outperforming by a wide margin, up 2.9 percent.
Since March 9, when a global equity market rally began, the index has risen 77 percent, leading the world. Valuations have been ticking higher, but so far investors have been comfortable paying what they view as a growth premium.
On a 12-month forward basis, the Asia Pacific index is trading at around 14.8 times earnings, below the last bull market peak of 16 times.
Hong Kong's Hang Seng index <.HSI> advanced 1.7 percent to the highest since late August, led by HSBC.
Asia's economies, especially in China and South Korea, were among the first in the world to show results of stimulus spending. However, the U.S. economy has also indicated growing momentum, emboldening investors to shift more money out of cash and into higher-yielding assets.
U.S. auto sales in July were a 2009 high, thanks largely to a Cash for Clunkers government program that offered a handout to trade in older, less fuel-efficient cars. In addition, a U.S. manufacturing gauge showed much less contraction in the sector than expected in July.
The Australian dollar was an early winner in the foreign exchange market.
The currency rose to a high around $0.8470 after sequential growth in second quarter Australian retail sales and housing prices much exceeded forecast.
We will be significantly revising up our consumption number, and likely won't be alone, Robert Rennie, chief currency strategist with Westpac in Sydney, said in the Reuters Markets Buzz chatroom shortly after the data was released.
The ICE Futures U.S. dollar index <.DXY>, a measure of the currency's value against a basket of six major currencies, dipped 0.1 percent to a 10-month low after piercing through major chart support overnight.
Government bonds were under pressure from persistently strong equity markets and growing appetite for risk.
The three-year Australian treasury bond future dipped 0.2 point to the lowest since early October, while the 10-year Japanese government bond future sagged 0.25 point to the lowest in more than a month.
U.S. Treasuries were largely unchanged in both the cash and futures market.
Oil prices edged back on some profit taking after a three-day rally helped crude clear $70 a barrel. U.S. light crude for September delivery was down 0.3 percent to $71.34, and Brent was off 0.1 percent to $73.45.
(Additional reporting by Aiko Hayashi in TOKYO; Editing by Tomasz Janowski)