Asian stocks started new year trading with tentative gains as investors anxiously wait to see if the U.S. Congress can strike a last-minute compromise and avert the harsh "fiscal cliff" tax rises and spending cuts that are technically already in force.
The U.S. Senate early on Tuesday passed a bill that aims to avoid the cliff's automatic implementation of $600 billion in spending cuts and tax increases.
But the bill's fate was uncertain in the House of Representatives, where a number of Republicans complained it did not tackle spending cuts adequately.
"Frankly, we don't know what to make of it all. It's like a circus there," said one exasperated forex dealer at an Australian bank in Sydney.
"The markets have always assumed they would eventually strike a deal that would avoid the worst affects of the fiscal cliff, but it's getting harder and harder to stay optimistic."
The MSCI Asia Pacific ex-Japan index of stocks <.MIAPJ0000PUS> was up 0.3 percent largely on the back of gains in Australian markets where mining giants Rio Tinto and BHP Billiton helped the local benchmark rise 0.6 percent in early trading.
Asian stocks outside Japan rose nearly 20 percent last year as a combination of improving economic data from China, receding worries about the euro zone, and global central bank easing that encouraged investors back into equity markets.
Sakthi Siva, Asia strategist for Credit Suisse, said 2013 could see similar returns for Asian equities as the pace of earnings downgrades slows.
Improved earnings could prompt a long-awaited switch out of safe haven assets such as gold and bonds, she said, noting such a view assumes "a minimalist compromise deal is reached on the fiscal cliff."
With the last-minute Senate deal on the fiscal cliff already hitting stumbling blocks in the House of Representatives, and the prospects of more wrangling as the U.S. nears its debt ceiling in February, there is little comfort for investors as political events continue to trump market fundamentals.
The Japanese yen continued its slide as investors wagered the Bank of Japan would have to take ever-more aggressive easing steps to support the economy and satisfy the new government.
The dollar held firm on the yen at 86.60 yen, having touched its highest level since August 2010. The Japanese currency also dropped to depths not seen in over four years against the Australian and New Zealand dollars.
Japanese stock markets <.N225> will reopen on Friday.
The euro was a shade weaker against the U.S. dollar at $1.3195, but turnover was extremely thin.
Spot gold was little changed at $1,671 an ounce, while oil futures dipped 11 cents to $91.71.
(Reporting by Wayne Cole in SYDNEY and Vikram Subhedar in HONG KONG; Editing by Eric Meijer)