Asian shares and the euro gained on Wednesday on hopes that the threat of mass credit rating downgrades will pressure European leaders to come up with a convincing framework for resolving the euro zone debt crisis at a crucial summit later this week.

Standard & Poor's, which on Monday told 15 euro zone member nations that it may cut their debt ratings, fired a second shot less than 24 hours later, threatening on Tuesday to cut the credit rating of Europe's financial rescue fund.

The rating action weighed on stocks initially, but U.S. stocks picked up a little late on Tuesday after the Financial Times reported that European leaders would discuss boosting the firepower of the euro zone bailout fund.

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose 1 percent, while the Nikkei stock average <.N225> was up 0.8 percent, sticking to recent ranges.

People are more optimistic that the news out of the December 9 meeting would be more upbeat, so it's a bit of a reaction to that, said Guy Stear, head of research with Societe Generale in Hong Kong, adding that the markets were in a technical bounce from yesterday's moves.

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Euro zone graphics package: http://r.reuters.com/hyb65p

Australia GDP: http://link.reuters.com/zas45s

Reuters tankan: http://link.reuters.com/gun45s

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The euro stood at $1.3412, off its one-week low near $1.3330 touched on Tuesday, with guarded optimism ahead of the European Union summit on Friday and the European Central Bank's policy meeting on Thursday.

Market players expect the central bank to announce a rate cut as well as expanded liquidity measures to ease strains in the banking system.

We see scope for some additional short-covering between now and the weekend, barring an EU summit failure. One caveat being if the ECB surprises with more aggressive easing on Thursday than the 25-basis-point reduction in the refinancing rate that is generally expected, analysts at BNP Paribas said.

Short-covering, when traders buy back a currency they have earlier sold to realise gains on an bet it would fall, can often prompt a short-term bounce.

In the latest evidence of the euro zone debt crisis affecting the global economy, a Reuters poll on Wednesday showed Japan's manufacturers turned pessimistic for the first time in six months, boding ill for the fragile recovery from a devastating earthquake and tsunami in March.

EUROPE MAKING PROGRESS

European leaders are striving to forge an agreement at their summit to enforce fiscal discipline, and France and Germany want to change EU rules to impose penalties on states that exceed deficit targets -- both measures aimed at staving off further market attacks on highly indebted and vulnerable economies.

European Council President Herman Van Rompuy, who will chair the EU summit, said tighter budget oversight sought by Paris and Berlin could be achieved quickly with only minor tweaks to EU treaties, raising hopes for a swift implementation of the measure to help restore market confidence.

There also appeared to have been some progress on bolstering the firepower of the region's rescue fund, some 40 percent of which has already been committed to bail out Greece, Ireland and Portugal.

Euro zone officials said the leaders may decide on Friday to raise the combined lending limit of their temporary and permanent bailout funds.

Investors shunned risk ahead of key events this week, driving demand to a record at Tuesday's auction of $35 billion four-week U.S. Treasury bills, sold at a rate of zero percent.

Financial stresses in Europe stayed elevated on Tuesday, with the spread between three-month euro Libor rates -- a benchmark for banks lending to each other -- and overnight indexed swap rates at 92 basis points, near an almost three-year high of 93 basis points hit on December 1. The wider spread indicates waning appetite for risk.

The spread between three-month dollar Libor rates and overnight indexed swap rates widened on Tuesday to about 46 basis points, marking the largest gap between the two since early May, 2009. The three-month dollar Libor rate itself hit its highest since mid-2010.

Investor caution kept Asian credit markets subdued, with spreads on the iTraxx Asia ex-Japan investment grade index narrowing marginally on Wednesday.

A lot of short positions are being taken off before the event but no one is really putting on risk. Eyes will remain on headlines, said a Singapore-based trader with an Asian bank.

(Additional reporting by Ian Chua in Sydney and Umesh Desai in Hong Kong; Editing by Alex Richardson)