Asia stocks rose on Wednesday after hopes Citigroup will deliver a first-quarter profit sparked an improvement in investor confidence, though grim Chinese export data sent dealers buying the U.S. dollar for safety.

While Beijing's efforts to prop up the economy were expected to really take hold in the third quarter, near-term prospects were in jeopardy as both exports and imports fell for a fourth consecutive month.

Citi, whose share price traded below $1 for the first time last week, was profitable in the first two months of 2009, the bank's chief executive said in a memo to staff, heaping pressure on the firm to post a quarterly profit after chalking up losses in the last five quarters totaling around $37.5 billion.

Wall Street jumped 6 percent in heavy volume overnight <.SPX>, helped by Citi and comments from an influential U.S. congressman that rules against short selling stocks may be re-implemented in a month.

Asia's equity rally by comparison tempered, as questions remained about the nature of Citi's profits.

With the U.S. government still examining ways to stabilize the bank if needed, we remain somewhat skeptical and are wary of the rally we have seen today in the equity markets which reminds us of the previous rounds of dead cat bounces we have witnessed, economists with United Overseas Bank in Singapore said in a note.

Japan's Nikkei share average <.N225> rose 3.8 percent in moderate trading volume, rebounding from a 26-year closing low plumbed on Tuesday.

The country's largest banks outperformed the broader market, with shares of top bank Mitsubishi UFJ Financial Group <8306.T> up 5.8 percent.

Australia's benchmark S&P/ASX 200 index <.AXJO> rose 1.8 percent, helped by miners BHP Billiton Ltd and Rio Tinto Ltd on a rise in metals prices.

The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> climbed 2 percent, led by the materials and financial sectors. Tuesday's 5.1 percent rise on the MSCI all-country world stocks index <.MIWD00000PUS> was the biggest daily gain in three months.

A 6 percent rise in HSBC <0005.HK> led Hong Kong's Hang Seng index <.HSI> up by 2.85 percent and trimmed steep losses on the week ahead of its $18 billion rights issue.

The bank's Asia chief executive in a news briefing on Tuesday characterized the rights issue as going extremely well so far.


While the Citi news brightened views on stability in the banking industry, the economic picture was darkening.

Japanese wholesale prices in February fell at the fastest annual rate in nearly six years, suggesting deflation is worsening and strangling the world's second-largest economy.

Chinese trade data for February reflected further pullback in global demand, with exports falling 26 percent compared with a 18 percent slide in January.

China has finally and spectacularly succumbed to world financial crisis on the export side, and it's difficult to see why that would improve in the short term, said Paul Cavey, economist with Macquarie Securities in Hong Kong.

The euro fell 0.3 percent to $1.2638, though held above a 3- month low around $1.2455. The dollar edged down against the yen to 98.50 yen, having come off a four-month high near 99.70 yen hit last week.

The Australian dollar reversed course and fell 0.5 percent to US$0.6430 after the Chinese trade figures, since China is Australia's second-biggest trading partner.

When risk appetite falls the dollar attracts buying and when such tolerance increases the dollar tends to be sold, said Yuji Saito, head of the foreign exchange sales department at Societe Generale in Tokyo.

U.S. Treasuries were subdued ahead of an $18 billion 10-year note auction on Wednesday and $11 billion in 30-year bonds on Thursday.

New supply so far this week has met solid demand, including from foreign investors. However, dealers were nervous about further cheapening of bond prices ahead of the late-maturity auctions as well as investors bailing out of the market for higher yields in corporate bonds.

The yield on the benchmark 10-year note was around 3 percent, a level the market has made three other attempts to climb above this year.

U.S. crude futures were steady at $45.75 a barrel after falling nearly 3 percent overnight following a cut in the U.S. government's forecast for world oil demand this year.

Gold cut losses on the day and inched up 0.2 percent to $897.40 an ounce in the spot market. Gold is down more than 10 percent from the 11-month high above $1,000 hit on February 20, as investors have chipped away their safety trades.