Asian equities climbed a fifth consecutive session on Monday, led by Chinese stocks, and the euro inched higher as some near-term risks receded about Greece's funding for the rest of the year and a slowdown in China appeared relatively moderate.
After two weeks of gains, equities were on strong footing as fears eased about a sharp slowdown in emerging market giants like China and a drop in commodity prices like oil boosted demand for risky assets after a rocky first half.
The Shanghai composite index, which is still down year-to-date, rose 1.8 percent on Monday <.SSEC> after data last week showed China's manufacturing growth moderated in June, raising expectations that the economy may not be heading into a sharp slowdown due to excessive tight monetary policy.
The China Enterprises index <.HSCE> of top mainland firms listed in Hong Kong was 2.3 percent higher.
Though headline PMI data showed signs of moderation, underlying investment trends remain strong and headline inflation is likely to dip in the second half, Merrill Lynch strategists said.
They expect the economy to grow by more than 9 percent in 2011 -- much higher than a so-called hard landing scenario growth of around 7 percent.
Not only is the China equity market now trading close to recent year lows, but it has also become more attractive relative to global peers, with a P/E discount to the US market of more than 20 percent, said Nomura strategists, recommending industrials, materials and consumer as top sector picks.
Offering yet another ray of optimism for cautious-minded investors was a batch of U.S. data that suggested the world's biggest economy may be recovering strongly from a recent spell of weakness.
The pace of growth in U.S. manufacturing picked up for the first time in four months, with an index of national factory activity rising to 55.3 in June from 53.5 in May, Institute for Supply Management (ISM) data showed on Friday.
Japan's Nikkei <.N225> rose 1.4 percent, rising above 10,000 points level for the first time in two months, while Australian stocks <.AXJO> gained 1 percent.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 1.4 percent, touching its highest level since early June, adding to two consecutive weeks of gains.
In Thailand, the baht and local shares <.SETI> gained after the clear majority obtained by the Puea Thai party suggested the possibility of post-election instability looked less likely in the short term.
Flows data painted a cheery picture. EPFR Global-tracked Emerging Markets Equity Funds snapped a three week outflow streak heading into July with Asia ex-Japan and the diversified Global Emerging Markets (GEM) Equity Funds both taking in over $1 billion while outflows from high yield bond funds slowed.
U.S. markets are shut on Monday for a holiday.
With concerns over Greece fading into the background, markets will now focus on a European Central Bank policy rate decision on Thursday where it is widely expected to raise interest rates though players will be more interested in knowing the future trend of rate hikes, particularly in the backdrop of weak data from Germany.
Even as the latest disbursal of emergency funds calms nervous investors, Greece faces an uphill task in trying to implement the reforms demanded by international lenders which means the euro's path higher will be rocky.
Euro zone finance ministers on Saturday approved a 12 billion euro instalment of Greece's bailout and said details of a second aid package for Athens would be finalised by mid-September.
The euro last traded at $1.4552 because of some stop-loss buying, extending last week's 2.5 percent rally, which was the largest since January. Broadly, it remained hemmed inside a broad range established since early May.
Improved appetite for risk and the end of the Federal Reserve's quantitative easing policy reduced demand for U.S. Treasury bonds, with yields on 10-year notes settling at 3.18 percent, near its highest in almost two months and adding to a weekly rise of more than 30 basis points.
U.S. crude futures were trading above the $95 per barrel mark, holding on to last week's gains, despite a surprise move by the 28-nation International Energy Agency to release 60 million barrels of oil reserves.
Elsewhere, precious metals like gold and silver eked out meager gains in thin trading.