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Tokyo - Asian shares hit one-week highs on Thursday, and commodity prices and the euro firmed, on signs that Europe was dealing urgently with Spain's banking crisis and that the United States could embark on fresh monetary stimulus.
Dovish comments from a senior US Federal Reserve official and strong Australian jobs data cemented the bullish sentiment, sending the Australian dollar to three-week highs and pulling down safe-haven currencies such as the US dollar and yen.
However, analysts and market players described the rally in shares and other risky assets as a bounce, not a turning point, and said buyers still needed to see genuine progress within the eurozone to tackle the region's worsening debt crisis.
"The core issue is not in the United States but in Europe. For risk aversion to disappear entirely, considerable improvements must be made in Europe," said Junya Tanase, chief foreign exchange strategist at JPMorgan Bank in Tokyo.
MSCI's broadest index of Asia-Pacific shares outside Japan rose as much as 1.9% to a one-week high, and Japan's Nikkei average advanced 1.2%.
European shares were also set to extend their gains on Thursday, with spreadbetters predicting major European markets
to open up as much as 1%. US stock futures were up 0.1%.
Fed Vice Chair Janet Yellen laid out the case for further easing monetary conditions on Wednesday, saying "it may well be appropriate to insure against adverse shocks".
Earlier, regional Fed officials from Atlanta and San Francisco said they were prepared to take more policy action to boost the erratic US economic recovery - even though 10-year Treasury bonds are already yielding close to all-time lows.
Fed Chairman Ben Bernanke is due to testify on the US economy before a congressional committee later on Thursday, and investors will be watching closely for any clues over policy ahead of the Fed's June 19-20 policy meeting.
Greg Gibbs, a currency strategist at Royal Bank of Scotland in Sydney, noted that Fed Vice Chair Yellen tended to side with Bernanke on monetary policy.
"It (Yellen's comment) probably does represent some shifting at the core of the Fed. It would probably be positive for risk and negative for the US dollar," Gibbs said.
The dollar index, measured against a basket of major currencies, eased while the euro fetched $1.2562, holding away from the almost-two-year low of $1.2288 touched on Friday.
The yen traded 0.3% lower against the dollar at ¥79.42. US Treasuries, another safe haven, also eased in US trade, pushing up their yields, but Treasury futures ticked up after Yellen's comments on possible further stimulus.
"Things may turn upside down very quickly depending on European developments, but there are many people who want to sell dollars, especially against Asian currencies," said a trader for a major Japanese bank in Bangkok.
Australia to the rescue
Investors have rediscovered some appetite for risk amid evidence that European officials are urgently exploring ways to rescue Spain's troubled banks.
Spain faces market tests later on Thursday by issuing €1bn - €2bn, split between three bonds, the lowest target it has set this year. The sale may be a gauge of confidence in whether Spain can avoid a bailout from the European Union as it struggles to prop up ailing banks and to pay the high interest rates it is being charged.
Australia also offered encouragement on Thursday, adding 38 900 jobs in May, the second surprisingly strong piece of data in as many days. On Wednesday, it reported robust economic growth of 1.3% in the first quarter.
The Australian dollar shot up to a three-week high against the US dollar of $0.9967, and also gained about 0.5% against the yen to ¥79.10, a two-week high.
Australia had just cut interest rates on Tuesday, citing the uncertain global environment, in a move that fuelled hopes among investors that other central banks would follow suit.
However, the European Central Bank (ECB) kept interest rates steady on Wednesday and dashed immediate hopes it would provide another long-term tranche of cheap loans to European banks.
"Although there were no overt hints of immediate action from the European Central Bank, investors feel that the overall tone of global policymakers is accommodative of a breakthrough at the US FOMC and EU leaders' summit scheduled later in the month," said Rhoo Yong-suk, an analyst at Hyundai Securities.
US crude rose 0.4% to $85.35 a barrel, while Brent crude was up 0.2% at $100.78 on Thursday.
Copper added 0.5% to $7 446.75 a tonne and spot gold edged up 0.2% at $1 621.09 an ounce.
The cost of insuring against corporate and sovereign defaults in Asia eased further on Thursday, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 8 basis points.
