Stocks rose on Friday as optimism about upcoming company earnings encouraged foreign buyers back into Asian markets, and the dollar retreated as investors sold the low yielding currency in favor of riskier assets.
The euro steadied despite a political crisis in Portugal that prompted a downgrade from ratings agency S&P and added to concerns over Europe's sovereign debt crisis.
"The market is treating many of these downgrades as rearguard actions which are already well discounted and the dollar is under pressure broadly," said Todd Elmer, currency strategist at Citi in Singapore.
"This will continue to support the euro even if we do see some marginal negative news on the sovereign debt crisis."
Financial bookmakers forecast major European share markets to open up 0.7-0.8 percent, while S&P 500 futures were up 0.4 percent, pointing to a firmer opening on Wall Street.
Gold retreated from a record struck on Thursday as unrest in the Middle East and North Africa and a nuclear crisis in Japan continued to support the metal's safe-haven appeal.
Japan's Nikkei rose 1.1 percent, rounding off a week of gains as foreign investors scooped up battered shares, with analysts saying some technical indicators showed the market heavily oversold.
The index is down 7 percent from its close on March 11, when a massive earthquake and tsunami struck northeastern Japan. .T
The disaster left 27,400 people dead or missing, crippled a nuclear power plant that has been leaking radiation and cut power to millions of homes and factories.
"More than 60 percent of stocks on the Tokyo stock exchange's main board are trading below their book value," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
"So it's time to buy back shares while watching problems at the nuclear plant carefully."
Foreign investors bought a net 891 billion yen ($11 billion) of Japanese stocks last week, capital flows data from Japan's Ministry of Finance showed on Friday, the highest weekly total recorded in the data that goes back to 2005.
Foreigners were net buyers in other Asian markets, including South Korea and Thailand.
"With U.S. equities rising on solid earnings it looks as if risk appetite improving," said a trader for a major Japanese bank in Tokyo.
MSCI's index of Asian shares outside Japan .MIAPJ0000PUS was up 1 percent, with the tech sub-index .MIAPJIT00PUS up 2 percent, following gains on Wall Street, where hopes of healthy corporate earnings lifted the S&P 500 nearly 1 percent.
The index remains down around 1 percent on the year, underperforming the MSCI World index which is up nearly 3 percent.
Strong buying of the Australian dollar fueled talk of M&A activity, with the benchmark index rising 0.9 percent and rumoured takeover target Woodside Petroleum up 2.6 percent.
"There has been some quite sizable buying of Aussie currency with a view there may be some imminent large cap corporate activity in our market," Shaw Stockbroking senior dealer Jamie Spiteri said.
"That has seen takeover talk BHP may make a move on Woodside resurface."
The Australian dollar traded around $1.0218, within sight of a 29-year high of $1.0257 scaled on December 31. The dollar's weakness extended across a basket of major currencies, with the dollar index hovering close to a 15-month low.
The resignation of Portugal's prime minister after parliament voted down his minority government's austerity plans had hit the euro on Thursday on expectations it increased the chances of the indebted nation needing an EU bailout.
But the single currency rebounded later, as European Union leaders began a summit in Brussels. The euro held steady from late U.S. trade on Thursday at around $1.4170, after dipping to as low as $1.4150 earlier on the news of Portugal being downgraded.
Investors in the single currency took comfort from expectations the European Central Bank will raise interest rates next month, thereby boosting its yield advantage over the dollar as the U.S. Fed is expected to keep policy ultra-loose for some time yet.
The yen traded near 81 per dollar, a level it has clung tightly to all week since a rare coordinated intervention by leading central banks to curb its appreciation last Friday.
Despite optimism in stock markets, investors remained concerned about violence in Libya and the Middle East and a nuclear crisis in Japan, where engineers were battling to stabilize a power plant damaged by the quake. Safe-haven buying drove gold to a record $1,447.40 an ounce on Thursday.
Spot gold retreated to around $1,433.35 an ounce on Friday.
Oil eased a little, with U.S. crude edging down 17 cents to $105.43 a barrel and Brent crude 8 cents lower at $115.64, but analysts said the trend remained upwards. <O/R>
"So long as ongoing problems in the Middle East continue to elevate risks of a further supply disruption, there is a strong likelihood of a price spike in the second quarter as the market demands additional oil to meet summer demand," said JP Morgan analysts headed by Lawrence Eagles.
(Editing by Ian Geoghegan)