Tokyo - Asian shares surged and the euro recovered on Tuesday as investors covered short positions and hunted for bargains while awaiting US Federal Reserve Chairperson Ben Bernanke's view on the US economy expected later in the day.
European stocks were likely to rise, tracking Asia and a 0.5% increase in US stock futures that pointed to a stronger start in Wall Street. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open up as much as 0.6%.
Weak US retail sales and a lower International Monetary Fund global growth forecast on Monday raised hopes of more monetary stimulus from the Fed, as Bernanke was set to give his semi-annual Congressional testimony on Tuesday and Wednesday.
He is expected to reiterate the bank's stance that it will take further action only if economic conditions worsen.
"For global shares to rise, investors will probably need more stimulus and an improvement in economic sentiment," said Shun Maruyama, chief strategist at BNP Paribas.
Some traders cited the Reserve Bank of Australia's minutes as spurring further buying in riskier assets, as they suggested the central bank may be spared for now from having to cut rates further to support growth.
"The minutes suggested a slightly hawkish tone, pushing back expectations for more rate cuts in the near-term, which eased concerns about growth in developed countries and underpinned market prices," said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo.
Australia's central bank saw "no need" to cut interest rates at its July meeting because a material easing had already been delivered and data showed the domestic economy had more momentum than first thought.
The Australian dollar hit a session high near $1.0300 after the minutes, up from $1.0248 late on Monday.
Traders also said short covering in the euro - when players buy back the currency to realise gains on an earlier bet it would fall - gained further momentum after the minutes.
The dollar found support against the yen after Japanese Finance Minister Jun Azumi said he was prepared to take firm measures on currencies when needed, a hint that Tokyo could intervene in the market, as a firm yen would hurt Japan's economy.
Hong Kong shares rally
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.3% for a third straight day of gains, with Chinese equities leading their peers.
Hong Kong shares rallied 1.8% on a mix of factors including strong performance in Chinese insurers due to solid premium growth in June, rising rail stocks on expectations for more government investment, as well as stop losses triggered on Hang Seng index futures contracts at the 19,200 level.
Australian shares rose 1% as investors moved into stocks with strong dividend yields while South Korean shares gained 0.8% on programme arbitrage trading.
Japan's Nikkei stock average added 0.8% after a public holiday on Monday.
Weakness in US retail sales in June fuelled investor concerns as the retail sector drives about two-thirds of the US economy.
The pressure on the United States may get stronger after the IMF, along with cutting global growth forecast, warned of a dimming outlook if European policymakers do not act forcibly and promptly to quell their region's debt crisis.
"Absent recession, the dominant market driver will still be US policy and cheap money," said Kit Juckes, currency strategist at Societe Generale.
The weak US retail sales data pushed the 10-year Treasury yield down to 1.442% on Monday, matching the record low hit on June 1, while the dollar fell to a one-month low of ¥78.69. The dollar was at ¥78.92 on Tuesday.
The nominal effective exchange rate for the dollar/yen now is around the same as late October when Japan intervened to prop up the dollar, said Hideki Amikura, forex manager at Nomura Trust Bank. "Azumi's comments today must reflect his wariness that Bernanke's comments this week could further pressure the dollar lower," Amikura said.
Oil steadied from earlier losses, with Brent crude up 0.1% at $103.49 a barrel and US crude inching up 0.1% at $88.54 a barrel.
Uncertainty over the future of the eurozone's permanent bailout fund deepened on Monday when Germany's Constitutional Court said it would not rule until September 12 on whether the European Stability Mechanism, and planned changes to the region's budget rules, are compatible with German law.
The delay in mobilising bailout funds for troubled eurozone states could risk pushing borrowing costs in vulnerable economies such as Spain and Italy beyond sustainable levels.
The euro stood at $1.2292 on Tuesday, off its two-year low of $1.2162 hit on Friday, and at ¥97 against the yen, above a six-week low of ¥96.17 touched on Monday.
Asian credit markets remained wary of bearish global growth prospects, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.