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Tokyo - Asian shares rose on Wednesday as upbeat US economic data plus signs of improving capital positions at big American banks stoked appetites for risk, while reduced expectations for more monetary easing by the Federal Reserve underpinned the dollar.
The dollar eased from a seven-week high against a basket of major currencies of ¥80.320 hit on Tuesday, but touched a fresh 11-month high of ¥83.28.
A brighter economic outlook hoisted US equities to multi-year highs, with the Standard & Poor's 500 Index closing at its highest level since June 2008, while the Dow Jones industrial average ended at its loftiest since December 2007.
Shares in Asia started robustly on Wednesday, though gains were later pared.
The MSCI Asia Pacific ex-Japan index, carrying the momentum from overnight, was up 1.2% on Wednesday morning and later 0.7%, while Japan's Nikkei average reached a seven-month high. It quickly rose 2.2% and closed was up 1.5%, aided by a softer yen and rallying US stocks.
Australian shares rose 0.9% to a two-week high, driven by top miners and banks, and financials drove South Korean up to a seven-month high.
Financial spreadbetters expected major European markets to open about 0.5% to 0.6% higher.
"The markets do run very much on confidence and at the moment, that's improved greatly. The international markets, in particular Wall Street, have been having a nice rally," said Grant Williamson, a partner at New Zealand brokerage Hamilton Hindin Greene.
The dollar's strength undermined the euro, which hit a one-month low of $1.3034. Gold edged up 0.1% at $1 676 an ounce on bargain hunting following Tuesday's 2% drop in prices, but a firmer dollar capped the upside.
After rallying the previous day, copper eased 0.4% to $8 522 a tonne while Brent April crude held near $126 a barrel after settling at $126.22 on Tuesday, the highest close since April 8, 2011.
Asian credit markets firmed, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by about 7 basis points.
Warming risk gauge
Reflecting improved sentiment, the VIX index, which measures expected volatility in the Standard & Poor's 500 index over the next 30 days, plunged below 14 on Tuesday to its lowest since mid-2007.
The current levels are near a major support base, which has caused the VIX index to rebound sharply and trigger turmoil in markets. But that is not necessarily a reason to look for an immediate turnaround in the stock market, analysts said, meaning there may be more room for equities to rise.
The US central bank slightly upgraded its economic outlook on Tuesday, saying it expects "moderate" growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate "remains elevated."
US retail sales posted their largest rise in five months in February, data showed on Tuesday, reflecting growing confidence by Americans to purchase goods.
With US authorities taking aggressive measures to safeguard growth and the nation's financial system after the collapse of Lehman Brothers in late 2008, the capital positions of US banks have improved substantially since then.
Most of the largest US banks passed their annual stress test, the Fed revealed in an earlier-than-expected release of the results, which show institutions are more resilient against financial shocks.
In Europe, Germany's ZEW economic think tank's monthly sentiment survey jumped in March to its highest level since June 2010, confirming hopes that Europe's largest economy has recovered from a weak patch.
China risk
Some analysts said the current optimism may be sapped if signs emerged of fragility in US growth momentum or of the Chinese property market and bank loan growth slowing.
China's property sales may drop about 20% in terms of volume and about 10% in weighted prices in the second quarter, but while the decline may be rapid, it will be constrained, said Guy Stear, head of research with Societe Generale in Hong Kong, at a seminar in Tokyo on Wednesday.
This year was likely to be the bottom for China's property market, he said.
China's home prices are still far from falling to a reasonable level, and efforts to curb real estate speculation must be maintained or risk chaos and a property bubble, which would harm the economy if it burst, Premier Wen Jiabao said on Wednesday.
Wen also told a news conference on the last day of the 2012 National People's Congress meeting that China will speed up economic reforms and let its currency float more freely in a bid to make growth more sustainable and cushion the country against external pressures and property market risks.
