Asian shares recovered on Thursday as investors cautiously bet on brightening prospects for Greece to secure a crucial bond swap, and so avoid a messy default, and U.S. data suggesting a recovery in the labour market ahead of key jobs figures.
Other assets, from copper and gold to oil, along with commodity-linked currencies such as the Australian dollar, eked out gains, while the dollar took the back seat as risk sentiment warmed.
The Greek debt swap deal and U.S. nonfarm payrolls, due on Friday, are seen as a test of whether markets can build on the optimism of recent months and overcome patchy growth figures that have dented sentiment.
The European Central Bank is expected to hold interest rates steady at a policy meeting later in the day and some analysts expect an assessment of last month's second liquidity injection, which helped soothe market jitters and boost risk appetite.
The MSCI Asia Pacific ex-Japan index rose 1.2 percent, snapping a three-day losing streak, while Japan's Nikkei average jumped 2 percent to also break three days of losses.
Financial spread betters expected major European markets to open 0.2 to 0.5 percent higher.
The euro rose 0.2 percent to $1.3172 (8354 pence), recovering from a three-week low of $1.3096 (8306 pence) touched on Wednesday. The Australian dollar came off a six-week low of $1.0508 (6665 pence) hit on Wednesday to rise 0.3 percent to $1.0611 (6730 pence).
Investors are cautiously following the risk-on momentum, said Goro Ohwada, president and CEO at Aino Investment Corp, a Japan-based fund of hedge funds, pointing to a belief by some investors that equities will remain supported in the lead-up to the U.S. presidential election in November.
Ample liquidity is also supporting risk appetite, but given the vulnerable nature of the current uptrend, I'd also put money in a category of assets unrelated to financial markets, such as natural gas and some commodities, he said.
Copper edged up 0.5 percent to $8,333 (5,285.09 pounds) a tonne while oil also held above late New York levels. Gold was little changed at $1,687 (1,069.96 pounds) an ounce.
The yen slipped to around 81.32 yen against the dollar from around 81.13 yen after data showed Japan logged a record current account deficit in January.
GREECE KEEPS HOPES
Major banks and pension funds, representing about 40 percent of Greece's outstanding debt, threw their weight behind Athens' bond swap offer to private creditors on Wednesday, raising the likelihood that the deal will go through and a 130 billion euro international bailout package would be secured. The offer expires at 8 p.m. on Thursday.
Any suggestion the deadline might be extended would probably send shivers down the spine of any 'risk-on' traders and EUR would likely suffer badly, BNP Paribas analysts warned.
In addition to hopes over Greece, U.S. and European stocks rose on Wednesday after the ADP National Employment Report showed the private sector added 216,000 jobs last month, topping economists' expectations for a gain of 208,000.
Friday's report is expected to show a gain of 210,000 in nonfarm payrolls, with a gain in the private sector of 225,000 jobs offsetting a modest decline in government jobs.
Optimism underpinned oil prices, with Brent crude holding near $124 (78.65 pounds) a barrel after settling up 1.75 percent, while U.S. crude held above $106 (67.23 pounds) a barrel. The geopolitical risk premium fell on news that major powers had accepted Iran's offer for more talks about its nuclear programme.
Sentiment in Asian credit markets also improved, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by about 4 basis points early on Thursday.
Asian bond issuance has been strong so far this year, reflecting investor appetite for higher yields.
This is really the best time before the U.S. long-term yields start going up again. You've got better data coming out of the U.S. and that's why we are seeing a rush of issuers tapping before rates start moving up in the dollar bond market, Anthony Chan, Hong Kong-based strategist with AllianceBernstein, said.
At the same time risk appetite has improved significantly from last year, so high yield bonds are appealing to investors.
Japanese investors also kept investing in foreign bonds last week. Data showed that Japanese investors also bought 2.637 trillion yen worth of foreign bonds in February, with insurers buying 456 billion yen, their largest net purchase since October 2010.
(Additional reporting by Ian Chua in Sydney, Umesh Desai in Hong Kong and Hideyuki Sano in Tokyo; Editing by Alex Richardson)