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Tokyo - Asian shares on Tuesday sustained momentum from an overnight rally in global equities, with solid manufacturing data from the United States offsetting signs of mild recession in Europe.
Participants in European equity markets are expected to be cautious, however, with financial spreadbetters predicting major European markets will open flat to 0.2% higher. US stock futures were steady.
MSCI's broadest index of Asia Pacific shares outside Japan gained 0.7%, while a firmer yen hurt Japan's Nikkei average, which fell 0.3% to move further away from a one-year high marked last week.
Australian shares pared some of the session's gains after the central bank left interest rates on hold, dashing lingering hopes for a jolt of stimulus to the economy and sending the Australian dollar below $1.0400 from around $1.0434.
"The current market environment is favourable in that it is inching higher while digesting caution and concerns about growth prospects, which suggests sentiment is actually quite solid," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.
"One good indicator for growth is the oil price, which has remained supported in part by supply disruption concerns, but its firmness is also driven by demand accompanying economic recovery."
Stronger than expected US factory data on Monday pushed US stocks to four-year highs, while European shares recorded their biggest daily gain in three weeks despite sluggish factory activity in the eurozone.
The US Institute for Supply Management report followed a surprise jump in China's large factory activity and stronger manufacturing in other leading exporters, South Korea and Taiwan, but output was still far from robust.
"There is a growing sense among many investors that markets could be about to enter a seasonal flat spot," said Cameron Peacock, a market analyst at IG Markets.
"The 'sell in May and go away' mentality normally starts to creep into investors' mindsets from mid-April and could be even more of a factor this year, given the profits already on offer to take off the table."
Barclays Capital analysts said they remained comfortable with their view that US cyclical outperformance will continue to support the dollar against low yielding developed market currencies.
US yields eyed
But on Tuesday, the dollar struggled to gain against the yen, as the yen's firmness was also underpinned by a drop in cross-yen pairs led by the Australian dollar after the central bank rate decision.
A fall in US Treasury yields pushed the greenback lower against the yen on Monday, and the dollar extended losses to hit a three-week low of ¥81.55 on Tuesday. The euro edged up 0.1% to $1.3332, off Monday's low of $1.3278.
Investors will likely remain cautious about taking aggressive risks, ahead of key data including US nonfarm payrolls on Friday and China's first quarter gross domestic product due next week.
Later in the session, the US Federal Reserve's Federal Open Market Committee (FOMC) will issue minutes from its meeting of March 13.
"Tuesday's release of the FOMC minutes may include a discussion of QE (quantitative easing) and shed more light on the possibility of a QE3 to come," said Societe Generale analysts.
"Market expectations range from viewing the Fed as in a wait-and-see mode to the anticipation of a concrete QE3 announcement in the April FOMC meeting."
Views over the Fed's policy direction are key to determining money flows, as receding expectations for further monetary stimulus have boosted US Treasury yields and lifted the dollar last month against such low-yielding currencies as the yen.
Oil paused from Monday's strong gains, with Brent crude futures easing 0.4% to $124.99 a barrel after settling up $2.55, while US crude was down 0.4% to $104.85 a barrel, after settling up $2.21.
Shanghai markets are closed through Wednesday, while European, US and some Asian markets will be closed on Friday for the long Easter weekend.
Asian credit markets firmed, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 2 basis points.
