Tokyo - A rebound in Hong Kong and Shanghai shares helped lift most Asian stocks into positive territory on Wednesday, but concerns that Europe's debt crisis has hurt confidence in the global economy and is weighing on corporate earnings limited gains.
The strength in Chinese shares also trimmed losses in Japan, but growth-sensitive Asian shares remained weak and an uncertain outlook for demand dragged industrial commodities such as oil lower.
Concerns that the Slovak parliament's rejection of a plan to expand the euro zone rescue fund could slow efforts to prevent the region's debt woes from morphing into a banking crisis led to a widening in Asian credit spreads.
"The broader trend is dictated by the problems in Europe, and Slovakia's rejection was negative to sentiment, as beefing up the fund is vital in providing a sense of security," said Hirokazu Yuihama, senior strategist at Daiwa Capital Markets.
S&P 500 futures eased after below-forecast results from Alcoa that could sour the mood on Wall Street later as attention turns to the US earnings season, and bookmakers expected European markets to open lower.
Slovakia is the only eurozone country that has yet to approve a plan to boost the funds available to the bailout fund, and a re-vote was expected later this week.
While the main opposition party was set to support the measure now the government has resigned, the twist has added to market nervousness just as European authorities were striving to come up with concrete steps to avoid a wider contagion.
MSCI's broadest index of Asia Pacific shares outside Japan rose 0.2%, but the materials sector bucked the trend and fell 1%.
Japan's Nikkei average was down 0.2%, trimming earlier losses but remaining capped after Alcoa, the largest US aluminium producer, said on Tuesday slowing economic growth knocked prices for the metal lower, denting its third-quarter profit and sending its shares down in after-hours trading.
"Those who were looking for reassurance about the US earnings season didn't find it," said Kenichi Hirano, operating officer at Tachibana Securities.
Asian credit markets reflected renewed bearish sentiment, with the iTraxx Asia ex-Japan investment grade index widening by as much as about 15 points.
A Hong Kong based fund manager said recent market gains were largely a technical rebound from last month's sell-off, adding that a lack of inflows from pension and mutual funds, so-called real money, was stymieing new bond corporate issues.
"All that you are seeing now is short-covering and fast money. There is no fund inflows into Asia and at this point no issuer can come to the market. Will they (issuers) pay up? I doubt it," the fund manager said.
Growth worries
Brent crude fell on Wednesday, snapping five days of gains, after Opec cut its global oil demand forecast and as the Slovak hitch in the eurozone bailout fund plan rattled investors' confidence across asset classes.
Brent was a down a touch at $110.71 a barrel, while US crude futures fell 0.5% to $85.40.
Industrial metals such as copper recouped earlier losses on a steep rise in Shanghai shares, short-covering and some restocking in China, but investors were cautious about an economic slowdown ahead of Chinese economic data due later in the week, including inflation and trade balance figures.
The euro eased, as a recent rally stalled after the Slovak vote, trading down around 0.1% on Wednesday at $1.3623.
Market sentiment had improved this week, after a weekend pledge by German and French leaders to come up with a plan to tackle the debt crisis.
Banking and regulatory sources said on Tuesday that Europe's banks would have to achieve a significantly stronger capital position under a quick-fire regulatory health check and may need to raise some €100bn.
Jose Manuel Barroso, president of the European Union's executive European Commission, said he would propose a bank recapitalisation plan on Wednesday, even though there is no agreement yet on where the money will come from.
Rating agencies Standard & Poor's and Fitch Ratings downgraded Spanish and Italian banks on Tuesday, underscoring concerns about the impact of the escalating debt crisis on the sector.