Publications
Partners
Singapore - Asian stocks rose and the euro edged off a seven-month low on Tuesday after a report that Italy may get financial support from China sparked a bout of short-covering but did nothing to ease fears that Europe is sliding into another banking crisis.
Growing expectations of a Greek debt default, sharp drops in European shares - especially French banks due to their sovereign exposure - and a surge in Italian bond yields meant sentiment remained fragile and any rally was likely to be short lived.
"There are still enormous challenges facing the European system at this point and fears around a default in Greece are very high and it's hard to see that changing any time soon," said Greg Gibbs, a strategist at RBS in Sydney.
The dollar eased broadly, helping lift dollar-denominated commodities such as gold, copper and crude oil.
Japan's Nikkei share average rose 1% and Australia's benchmark index gained 0.9%, while MSCI's broadest index of Asia Pacific shares outside Japan edged up 0.2%.
The MSCI index is nearly 20% below its 2011 high reached in April. A fall of 20% or more is the generally accepted definition of a bear market.
US stocks bounced back late in Monday's session after a report that Italy could get financial support from China tempered investors' worst fears over the eurozone debt crisis.
S&P 500 index futures rose 0.3% in Asia on Tuesday.
Market sell-offs like those of the last six weeks - driven by the eurozone crisis and fears of renewed recession in the United States - are often punctuated by "short-covering" rallies, when traders buy to realise profits on bets that an asset would fall in price.
Euro crisis
The Financial Times reported that Italy had asked China to make "significant" purchases of Italian debt. Italy has seen its borrowing costs spike in recent weeks on doubts about the political will in Rome to tackle its swollen debt.
Greece warned on Monday it would run out of cash next month without the next tranche, around €8bn, of a bailout loan. Eurozone policymakers have threatened to withhold the money as patience with Athens' repeated fiscal slippages wears thin.
A growing number of policymakers, as well as market economists, are convinced it is only a matter of time before Greece, which keeps falling behind on its fiscal targets after two EU/IMF bailouts, will have to default.
"The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain and it will take in the whole of the European banking sector too," Suki Mann, a strategist at Societe Generale, wrote in a note.
In currency markets, the euro climbed to around $1.3685 against the dollar after falling to a seven-month low of $1.3495 in the previous session, though weak demand at an Italian bond auction later in the day may see the single currency fall back again.
"All eyes are squarely on that seven-month low around $1.35 hit overnight," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.
"The downtrend in the euro will surely continue, but my sense is that unless the Italian bond auction goes extremely badly, this level may hold today."
The dollar index , which tracks the US currency against a basket of major peers, fell 0.7%.
The weaker greenback made dollar-denominated assets cheaper for holders of other currencies.
Copper rose 1% to $8 840 a tonne and oil also gained, with US crude up 0.9% at $89 a barrel and Brent crude rising 0.6% to $112.90, although traders remained wary.
"This is a shallow bounce because of Wall Street ending higher, so there is some confidence returning, but I don't think anybody would be putting any big positions given the global situation," said Victor Say, an analyst at Informa Global Markets in Singapore.
Gold bounced about 1 percent to around $1 831 an ounce, after dropping by more than 2.5% in the previous session, also supported by the safe-haven appeal that drove it to a record high of $1 920.30 last week.
"There is a slow-motion train wreck going on in Europe at the moment, which is going to be relatively supportive of gold," said Nick Trevethan, senior commodities strategist at ANZ.
"All the factors that have been supporting gold for the past few months are still there. Nothing has changed."
