Asian stocks reversed course and inched up on Tuesday taking heart from gains in the Chinese market led by property and bank stocks, while the Australian dollar dribbled higher after the central bank sounded cautiously optimistic on the economic outlook.
European shares are expected to open slightly higher after falling to their lowest close in nearly six weeks the previous day. There was no lead from Wall Street, which was closed for the Independence Day holiday.
Stock markets cheered gains in Shanghai, the world's second-worst performer after Athens. The Shanghai market has lost 27 per cent since the start of the year, after Beijing introduced a range of policies to cool the real estate fever.
"A rise by Shanghai stocks and a pullback by the yen helped soothe market sentiment," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.
"But a strong trend is difficult to emerge (in Tokyo) as the market has been thinly traded as the United States was on holiday yesterday. The market will need a stronger incentive to establish a clearer trend."
A liquidity squeeze has dragged on investor sentiment in China, particularly with a flood of issuances this week, including AgBank's initial public offering and concerns over further bank fundraising.
Analysts said investors were buying banking and property shares ahead of pricing of AgBank's $US20 billion IPO on Wednesday.
Australia's central bank left the cash rate at 4.5 per cent as expected, and said it was waiting further information about the international economy and domestic demand as it considers future policy moves.
The MSCI index of Asia Pacific shares outside Japan reversed direction and rose 1 per cent on gains in financials.
After data showing the US labour market shrank for the first time this year in June, slower Chinese manufacturing activity and euro zone austerity policies had fuelled investor concerns over prospects for the global economy.
That sent European shares to their lowest close in nearly six weeks on Monday and Asia stocks to a one-month low earlier in the day.
The Australian dollar rebounded to a high of $US0.8432 from early losses against the US dollar and yen after a statement by Australia's central bank helped dispel some gloom about the economic outlook and led to short-covering.
The bank kept its interest rate unchanged at 4.5 per cent, as expected, and said the global economy had continued to expand, albeit unevenly, with growth in Asia very strong and signs of China moderating to a more sustainable rate.
The euro swung into positive territory, up 0.1 per cent at $US1.2546, on the trading platform EBS, while the single currency inched up to 110.20 yen after small falls.
The yen earlier gained ground helped by news that China has expanded JGB buying. Japanese finance ministry data showed China has boosted its buying of Japanese government bonds this year, snapping up a net $6 billion of mostly short-term notes between January and April, double the record amount logged for all of 2005.
Japan's benchmark Nikkei rose 0.8 per cent to 9338.04, climbing above 9200, which is one support at a key retracement level, as beaten-down shares of Japanese exporters such as Canon Inc recouped ground.
The index earlier fell more than 1 per cent to hit its lowest in seven months.
The Shanghai composite was up 1 per cent. Mainland-listed real estate developers rose, boosted by strong results from Shenzhen-listed China Vanke Co.
An auction of 10-year Japanese government bonds attracted bids 2.76 times the amount of offers accepted, the lowest in three months, but the tail tightened, indicating decent demand for the new offer.
Lead 10-year September JGB futures were down 0.03 point at 141.54, little changed after the auction results announcement.
Oil extended losses to four-week lows near $US71 after a raft of negative economic indicators over the past week undermined confidence about growth in energy use.
Reuters