Asian stocks rose to their highest since May 2008 on Wednesday, led by sectors most sensitive to the economic growth cycle ahead of U.S. earnings, while the U.S. dollar slid to a two-month low, weighed by traders closing short-term bets against the euro.

Goldman Sachs will be a focus later, when the Wall Street bank posts fourth quarter results.

A rally in riskier assets, which has lifted the U.S. S&P 500 stocks index <.SPX> to its highest since September 2008 and pressed on despite the euro zone fiscal crisis, has been fed by hopes that the world's No.1 economy could return to a sustainable recovery path.

Positive U.S. earnings surprises could also keep the rally alive.

The dollar index <.DXY>, which measures the dollar against a basket of major currencies, fell to a two-month low as short-covering encouraged by talk of Asian central bank buying of the euro pushed the single currency to a one-month high around $1.3475, with its December 14 high of $1.3500 seen as a major resistance level.

People are covering euro short positions as Asian sovereign names have been buying the euro on dips in the past few days, said a trader for a Japanese bank in Tokyo.

As market players remain wary about China's fight against inflation, Hong Kong media reported that Chinese consumer prices rose 4.6 percent in the year to December, a slowdown from a 5.1 percent pace in November that would alleviate the need for aggressive monetary tightening.


The MSCI index of Asia and Pacific shares excluding Japan <.MIAPJ0000PUS> rose more than 1 percent, helped by sectors such as technology, energy and raw materials. Its tech sub-index <.MIASJIT00PUS> was up 1.4 percent, while the materials component <.MIAPJMT00PUS> rose nearly 1.5 percent.

Goldman Sachs Group Inc reports its earnings later in the day, with analysts expecting quarterly profit to have fallen by roughly half, hit by the same adverse fixed income trading environment that slammed Citigroup Inc's results a day earlier.

Goldman shares have held up far better than many rivals. Its shares closed Tuesday at $174.68, above where they were when the financial crisis exploded in September 2008.

I'm expecting a pretty good quarter, but expectations have gotten up there as you can tell by the stock price, said Keith Davis, an analyst at Farr, Miller & Washington in Washington, D.C., which invests $710 million and owns Goldman stock.

More earnings results are on the way: Morgan Stanley on Thursday and Bank of America Corp on Friday.

Google , whose increased price targets lifted its shares, reports later this week, and results of the heavy equipment maker Caterpillar are due next week.

A mostly upbeat start to the U.S. earnings season lifted expectations for Japanese firms to show further recovery, with the benchmark Nikkei <.N225> ending the day up 0.4 percent.

The Shanghai Composite Index <.SSEC> also rose 1.5 percent, while Hong Kong's Hang Seng index <.HSI> gained 1 percent.

The euro rose even though higher-yielding euro zone bonds fell on Tuesday after the Dutch finance minister said the Eurogroup had rejected enlarging a rescue fund for the region's more indebted states.

Gareth Berry, G10 FX strategist for UBS in Singapore, said if sovereign debt of euro zone peripheral countries stays under pressure it could eventually weigh on the euro.

Watch those sovereign bond yield spreads in Europe. They pushed wider again yesterday. The euro didn't seem to notice. But I think it will notice if it keeps going much longer.

In Washington, Chinese President Hu Jintao arrived for a four-day state visit against a backdrop of U.S. complaints that Beijing should do more to let the yuan strengthen.

The broad fall in the dollar helped push up U.S. crude above $91 a barrel, but its gains will likely be capped by the impending restart of Alaska's main oil pipeline and a suggestion by the International Energy Agency that OPEC may have raised output in response to high oil prices.

Dollar weakness also supposed spot gold, which rose by 0.4 percent earlier and was seen on course for a third consecutive day of gains.

(Additional reporting by Antoni Slodkowski, Hideyuki Sano in Tokyo, Ian Chua in Sydney and Masayuki Kitano in Singapore; Editing by Editing by Alex Richardson)