Tokyo - Asian shares eked out modest gains on Wednesday, but the euro struggled for fresh upward momentum over doubts about the long-term feasibility of the Greek bailout and as concerns grew about rising oil prices.
Doubts that Greece can carry through tough austerity measures in exchange for its €130bn bailout are expected to weigh on European market sentiment as well. Financial spreadbetters see major European markets opening flat to down 0.3%.
MSCI's broadest index of Asia Pacific shares outside Japan fell earlier as much as 0.7% before swinging nearly 0.2% higher. The index has climbed 14% so far this year to rank among the top asset performers.
The euro was changing hands at $1.3236 and struggling for fresh support, after pulling back from near two-week highs of $1.3293 on Tuesday after the Greek bailout deal was clinched. The dollar hit a fresh six-month high against the yen above ¥80.
"If you look at how much the equity market had already moved year to date, you'd expect the market to take a bit of a breather," said Markus Rosgen, head of Asia strategy at Citigroup in Hong Kong. "Equity markets had run up quite quickly and strongly. A break is something that wouldn't surprise me."
"Investors are undecided whether they should buy more or wait for a pullback," Rosgen said, adding markets were a bit overbought technically but valuations remained attractive.
Hong Kong shares rose 0.1%, lagging mainland markets but supported by strength in Chinese developers, which lifted the Shanghai index 0.9%.
Reaction to HSBC's China flash purchasing managers' index (PMI) - which showed the factory sector shrinking for the fourth month in a row in February as export orders slumped - was muted. Some investors took comfort though that the index rose from the month earlier, a fact cited in Japan and Australia for supporting shares.
Japan's Nikkei average closed up 1% and above 9 500, which had been a resistance level triggering profit-taking. The index is up 13% so far this year.
Australian shares had been weighed down by concerns that rising oil prices would hurt global growth and so undermine demand for the country's commodities. But they recovered to end flat in the rise in the China PMI index.
The bailout averted an imminent Greek default, but kept intact the long-term risk of a messy default and regional contagion given deep-rooted mistrust over Athens' commitment to harsh reforms.
"Even assuming the new Greek programme proceeds as planned, the Greek crisis is far from over," HSBC said in a report, noting the economy was in its fifth year of recession.
"Even the revised debt sustainability analysis looks optimistic and remember that Greece will still be subject to quarterly reviews, which could well mean that we are back to worrying about whether Greece will get the next tranche of funds by the summer," it said.
Oil new concern
Oil recovered earlier losses in Asia after scaling nine-month highs on Tuesday on relief at Greece's bailout news and moves by top Asian consumers - China, India and Japan - to cut crude purchases from Iran.
US crude futures for April were nearly flat at $106.28 a barrel after falling below $106 earlier on Wednesday. The March contract, which expired on Tuesday, settled at $105.84 per barrel, the highest settlement for the front-month contract in more than nine months.
Brent crude for April delivery slipped 0.1% to $121.57 after settling on Tuesday at a nine-month high.
"Prices are correcting as we've already got the boost from Greece and Iran's pre-emptive stoppage of oil to Britain and France," said Tony Nunan, a risk manager at Mitsubishi Corp, adding that the slowdown in Chinese manufacturing activity also weighed on prices.
However, Citigroup's Rosgen said the rise in oil prices was partly indicative of a stronger-than-expected world economy and they do not pose a risk to growth at current levels.
While central bank liquidity measures are partly blamed for fuelling a rise in commodity and energy prices, they had supported lower-rated eurozone sovereign debt markets, keeping bond yields of struggling Italy and Spain on a downtrend.
In credit markets, a pause in risk-taking pushed spreads on the iTraxx Asia ex-Japan investment-grade index wider by 4 basis points on Wednesday.