Asian shares rose to their highest in over five months on Wednesday as strong U.S. earnings reports boosted investors risk appetite, while the euro hit a one-month high against the dollar and the yen as Spain retained an investment-grade debt rating.
Growing risk tolerance weighed on the safe-haven dollar, pushing its index measured against a basket of six key currencies to a 1-1/2-week low while underpinning dollar-based commodities and the commodity-linked Australian dollar.
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A weaker dollar also lifted spot gold 0.2 percent to $1,750.79 an ounce, off a one-month low seen on Monday.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> jumped as much as 1 percent to a 5-1/2 month peak, and was last up 0.8 percent. Hong Kong shares hit a seven-month high as resources-related and shipping sectors gained.
The materials sector <.MIAPJMT00PUS> of the pan-Asian index outperformed, buoying resources-reliant Australian shares as much as 1 percent to 15-month highs. The Australian dollar was up 0.3 percent to $1.0303.
"We're in one of those situations where there's a lot of cash packed on the sidelines looking for significant pullbacks to get in," said Ric Spooner, a market strategist at CMC Markets, of the Australian equities.
Japan's Nikkei average <.N225> gained 1.3 percent to a one-week high as investors scooped up stocks cheapened by a recent selling that sank the index to a 2-1/2 month low.
The euro was boosted to $1.3125, its highest since September 17, after rating agency Moody's Investors Service on Tuesday affirmed its Baa3 investment grade sovereign rating on Spain, easing fears of an imminent downgrade to junk status.
The euro also touched a one-month high against the yen at 103.51 yen, before fading to 103.01 yen.
Justifying its decision to leave Spain's rating unchanged, Moody's cited the European Central Bank's bond buying scheme and Spain's continued commitment to implement reforms, but it assigned a negative outlook because "the risks to its baseline scenario are high and skewed to the downside.
European shares will likely only gain marginally, with financial spreadbetters expecting London's FTSE 100 , Paris's CAC-40 and Frankfurt's DAX to open up to 0.1 percent higher. U.S. stock futures eased 0.2 percent to hint at a weak Wall Street open.
Some analysts questioned the jump in the euro and said it was merely due to short covering, as many market players remain wary of completely unwinding their bearish stance on the single currency.
"People seem to forget that the fact Moody's assigned a negative outlook means there is risk that Spain's rating may be downgraded to junk if economic deteriorations threaten Moody's baseline scenario," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
Karakama also said the current low implied volatility for the euro/dollar was worrying as low volatilities have in the past preceded a sharp decline. He expected the euro to test a key technical support of its 200-day moving average which now stood just above $1.28.
The euro's resistance was now seen around $1.3145, a 50 percent tracement of a October 2011 high at $1.4248 and a July 2012 low at $1.2042, traders said.
Investors will be cautious ahead of a meeting of European leaders in Brussels on Thursday and Friday, eyeing possible discussions over bailouts for struggling Spain and Greece.
The dollar eased 0.2 percent against the yen at 78.68, retreating from Tuesday's one-month high of 78.97 yen.
Market reactions in Asia were muted to the latest televised election debate between president Barack Obama and Republican candidate Mitt Romney.
Obama aggressively challenged Romney on jobs, energy and Libya in their second debate on Tuesday as the Democrat tried to reclaim the momentum in a tight White House race.
U.S. crude futures inched up 0.2 percent to $92.28 a barrel but Brent steadied at $114.
London copper inched up 0.3 percent to $8,147 a tonne.
China's third-quarter gross domestic produce data will be released on Thursday.
Asian credit markets firmed, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 5 basis points.
(Additional reporting by Sophie Knight in Tokyo and Maggie Lu Yueyang; Editing by Simon Cameron-Moore)