Asian shares advanced to their highest in nearly two weeks with risk appetite returning on signs that a trend of global recovery is stabilizing, particularly in the United States and China.
Positive U.S. private sector employment and consumer confidence reports drove the dollar higher, while the yen retreated as demand for safe-haven assets weakened.
Continue Reading Below
Ahead of a U.S. nonfarm payrolls due at 08:30 pm EDT, a key market event, U.S. stock futures were down 0.1 percent, suggesting a cautious Wall Street start.
European shares were also seen subdued, with financial spreadbetters expecting London's FTSE 100 , Paris's CAC-40 and Frankfurt's DAX to open little changed.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 0.7 percent to its highest since October 23, and was set for a weekly increase of 1.3 percent.
Factory activity picked up moderately in China, which has spawned global growth in recent years, and business surveys showed other big Asian economies were slowly recovering as well, while there were mixed signals about the health of U.S. manufacturing.
Resources-reliant Australian shares closed up 0.1 percent, as caution before the U.S. jobs data trimmed earlier rallies rooted in improving U.S. and Chinese economic conditions. The risk-sensitive Australian dollar earlier rose to a five-week high of $1.0420.
"Downside risks are lessening," said Toru Yamamoto, chief strategist at Daiwa Securities.
Thanks to the developments in the U.S. and China, he added, global conditions appear to be getting better, and that "points to a nuanced improvement in sentiment."
Hong Kong's Hang Seng Index outperformed Asian peers with a 1.4 percent jump to a 15-month high, buoyed by strength in Chinese financials and growth-sensitive sectors.
"We could see more gains from here because funds will need to chase performance as the year draws to a close," said Alan Lam, Greater China equity analyst. "H-shares are going to lead the move up, since they are still lagging on the year."
The Hong Kong Monetary Authority stepped into the currency market during New York's Thursday trading hours to combat the local currency's persistent move to the strong end of its trading range. Hong Kong's de facto central bank is seeking to counter ample funds unleashed by global quantitative easing chasing stocks, property and other assets in the former British colony.
More capital inflows into Hong Kong are expected and could be a source for further strength for a year-end rally after the party congress that starts next week might alleviate some political uncertainty in China.
Japan's Nikkei average <.N225> ended 1.2 percent up at a one-week high as a weaker yen underpinned demand for shares.
The dollar inched up 0.2 percent against the yen to 80.29, nearing a four-month high of 80.38 hit last week.
U.S. employers likely added 125,000 jobs in October and the jobless rate likely ticked up to 7.9 percent from September's 7.8 percent.
Payrolls processor ADP reported on Thursday that U.S. companies added jobs in October at the fastest pace in eight months while new claims for jobless benefits fell last week.
U.S. jobless claims: http://link.reuters.com/quh73t
China PMI and output: http://link.reuters.com/qaz63t
2012 asset returns: http://link.reuters.com/muc46s
US ELECTIONS NEXT FOCUS
Positive economic news could affect the outcome of the November 6 elections while easing pressure for more monetary easing, pushing up Treasury yields and lifting the dollar.
"Market impact from the U.S. jobs data may in the end be offset by the outcome of the presidential election," said Daiwa's Yamamoto.
A rise in equities in the wake of a solid jobs report may be countered if President Barack Obama wins, as his re-election will be perceived as negative for equities, while weakness in stocks due to soft data could be recovered if Republican Mitt Romney wins, as markets see him as stock-friendly, Yamamoto said.
Morgan Stanley, in a research note, said "Asian economic indicators are consistent with a risk-on strategy, but we remain risk selective."
"The outcome of the U.S. presidential election is a close call, leaving markets concerned about whether the newly elected president will have the political capability to deal with the fiscal cliff," undermining the recent economic rebound, it said.
After the U.S. election, Congress must deal with that "fiscal cliff" - up to $600 billion in expiring tax cuts and spending reductions that are set to kick in next year - which threatens to hurt the U.S. economy.
The euro remained in the recent $1.28-$1.32 range, but dipped below $1.29 as spot gold slipped 0.4 percent to $1,707.74 an ounce after a fall below key support levels accelerated selling in bullion amid wariness before the U.S. payrolls data.
Reports on manufacturing activity in major euro zone countries, due on Friday, are expected to show continued economic contraction.
U.S. crude fell 0.4 percent to $86.71 a barrel and Brent was down 0.2 percent to $107.96.
Asian credit markets recovered, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.
(Additional reporting by Clement Tan in Hong Kong; Editing by Richard Borsuk)