Asian shares steadied on Thursday while the dollar index stayed under pressure, leaving investors who worry about global growth awaiting fresh U.S. economic data and a European Central Bank policy meeting later in the day.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> inched up 0.1 percent. Australian shares were up 0.3 percent, after a 14-month closing high on Wednesday boosted by an interest rate cut and a weaker local dollar. But South Korean shares <.KS11> were flat while the Hong Kong market was up 0.2 percent.
Japan's Nikkei average <.N225> rose 1.2 percent, helped by solid U.S. data and a weaker yen.
Chinese markets are closed this week for public holidays.
The Australian dollar fell to a one-month low of $1.0182 after sluggish retail sales underscored restrained consumer spending, making the case for more rate cuts after one made Tuesday. The currency last traded at $1.0209.
The Reserve Bank of Australia's rate cut was made to underpin a domestic economy feeling increasing pain from the economic slowdown in China, Australia's largest export market. A drop in commodities due tweak Chinese demand has weighed on the resource-rich Australian economy.
Investors have switched back to worrying about grim economic prospects after global policy steps to support growth and calm market jitters last month inspired a broad market rally.
"While market sentiment remains supported by last month's policy steps, one can sense in the way the Australian dollar moves that investors are mindful of downside risks, namely the risk of Chinese growth slowdown," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
"Assistance for Spain is a near-term focus but markets are basically marking time until the issue of U.S. fiscal cliff is clarified. Since that won't happen any time soon, investors will continue weighing the effect of stimulus measures against growth concerns," she said.
The "fiscal cliff" refers to the combination of broad-based spending cuts and tax rises, both set to take effect on January 2, that could seriously dent U.S. growth.
Bleak demand outlook stemming from global economic slowdown drove oil prices sharply lower and pushed down European shares on Wednesday, while Wall Street ended modestly higher on better-than-expected U.S. laborand service-sector data.
Later on Thursday, weekly jobless claims and U.S. factory orders for August will be released, as well as minutes from the U.S. Federal Reserve's September 12-13 meeting at which the central bank launched aggressive stimulus packages aimed at reducing high unemployment.
These reports precede Friday's monthly payroll data, the first such labor market update since the Fed's action.
"The FOMC minutes may shed some light on any possible dimensions surrounding the improvement in the labor market the committee is looking for and scale of purchases they are willing to undertake," ANZ Bank said in a research note.
After unveiling a program last month for buying bonds of struggling euro zone states that seek assistance to ease their financing stress, the ECB is expected to keep interest rates at a record low of 0.75 percent.
The euro edged up 0.2 percent to $1.2926, stuck in the middle of a three-week low of $1.28035 touched on Monday and a 4-1/2 month high of $1.31729 seen in mid-September.
The dollar index , which is measured against a basket of six major currencies, was down 0.1 percent, but the greenback added 0.3 percent to a two-week high of 78.67 yen.
SPAIN BUYS TIME
A euro zone business activity gauge suggested it was almost inevitable the region returned to recession in the third quarter, as dwindling new orders and faster layoffs nudged the index lower in September.
Sentiment has also been hurt by a delay in a widely expected rescue for Spain, the latest symbol of the euro zone's debt crisis, as well as ongoing negotiations between Greece and its international lenders over the fiscal austerity details needed to be cleared in exchange for a crucial bailout.
Still, expectations that Spain will ask for a bailout and the ECB's recent policy moves have eased fears about the region's debt crisis.
Options investors sought the least protection against the euro's drop in more than two years, with three-month euro/dollar risk reversals trading as low as 0.90 percent, a level not seen since March 2010.
The International Monetary Fund stands ready to help Spain in multiple ways if Madrid seeks its aid, IMF chief Christine Lagarde told a newspaper.
Spain faces a test of investor confidence when it sells up to 4 billion euros ($5.16 billion) of debt later on Thursday.
Portugal on Wednesday returned to bond markets for the first time since its 78 billion euro ($101 billion) bailout last year.
U.S. crude was up 0.2 percent to $88.33 a barrel, rebounding from a two-month low of $87.70 on Wednesday, while Brent also rose 0.2 percent to $108.42 after falling to a two-week low of $107.67 on Wednesday.
($1 = 0.7751 euros)
(Editing by Richard Borsuk)