Asian shares rose on Tuesday after China moved to support its stock market by buying shares of major banks, and the euro held the previous session's big gains on hopes that European leaders are finally taking action to protect the continent's lenders.
European stock index futures pointed to a steady start after four straight sessions of gains while U.S. futures were mildly weaker.
World stocks clambered out of bear market territory on Monday after a pledge from German and French leaders to come up with a plan by the end of the month to tackle Greece's confidence-sapping debt woes and recapitalize European banks.
I think it is significant that Germany and France came together to show they will not allow big banks to collapse, said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. Hopes that there won't be an abandoned bank like Lehman will ease excessive worries in the market.
Commodities were steady after surging on Monday as money flowed back into riskier assets.
Euro STOXX 50 index futures rose 0.1 percent. Futures for Germany's DAX gained 0.2 percent and France's CAC-40 futures were flat, while financial spreadbetters called the FTSE 100 <.FTSE> to open down 0.1 percent. S&P 500 futures fell 0.2 percent. <.EU> <.L>
Shares in China's big four banks leapt after the domestic arm of the country's sovereign wealth fund bought their shares in the secondary market on Monday, in Beijing's first move to support stock prices since the 2008 financial crisis.
But market players remained cautious, with early gains in Shanghai fading. The benchmark mainland stock index <.SSEC> has lost nearly 17 percent this year amid growing concerns of a hard landing for the economy.
This is psychological more than anything fundamental, said Cheng Yi, senior analyst at Xiangcai Securities in Shanghai. If 2008 offers any indication, we could see stock prices dip after an initial boost.
Japan's Nikkei share average <.N225> closed up 2 percent, partly catching up with gains elsewhere in the region on Monday, when Tokyo was shut for a holiday. <.T>
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> also rose 2 percent. Hong Kong's Hang Seng <.HSI> rallied 2.7 percent, but Shanghai's benchmark gave up its early gains and was off 0.1 percent. <.HK> <.SS>
Global markets were buoyed after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would agree on how to recapitalize European banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3-4.
That is both a positive and a negative, said Dan Greenhaus, New York-based chief global strategist at broker-dealer BTIG. It was negative in that no specific details were provided, but positive that they have given a self-imposed deadline.
Greenhaus told Asia-based reporters on a conference call that BTIG believed Europe's banking sector would need an injection of 300-500 billion euros.
Ultimately the major banks need to be recapitalized, but not recapitalized by an unreachable amount of money, he said.
Wall Street stocks <.SPX> rose more than 3 percent on Monday and European shares gained nearly 2 percent. <.N> <.EU>
MSCI's All-Country World index <.MIWD00000PUS> now stands around 18 percent below its May high for the year after climbing above the 20 percent loss level -- the rule-of-thumb definition of a bear market -- on Monday.
The euro was virtually unchanged around $1.3640 on Tuesday, after surging as much as 3 cents to a high just below $1.37 in the previous session. The single currency edged up against the yen to around 104.60.
An image of the euro falling without limit is receding, but unless there is some kind of fundamental solution, a clear break above $1.40 will probably be difficult, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The dollar rose 0.2 percent against a basket of currencies <.DXY>, but U.S. Treasuries fell as investors appetite for riskier assets returned, with the 10-year yield rising 10 basis points to around 2.164 percent.
A rebound in credit markets continued with spreads tightening about 12 basis points on iTraxx's Asia ex-Japan investment grade index, while regional interest rate swap curves were mostly higher and steeper.
Oil was slightly lower after rallying 3 percent on Monday, with U.S. crude down 11 cents at $85.31 a barrel and Brent crude shedding 20 cents to $108.75.
Gold, which in recent weeks has switched from a negative to a positive correlation with riskier assets such as industrial commodities and stocks as safe haven investors turned to the dollar, rose 0.2 percent to around $1,678 an ounce.
As the news revived risk appetite, some money was being moved out of the money market to commodities, including gold, said Hou Xinqiang, an analyst at Jinrui Futures in China.
(Additional reporting by Masayuki Kitano and Rujun Shen in Singapore and Hideyuki Sano in Tokyo; Editing by Richard Borsuk)