Asian markets extend gains on hopes for EU summit

Markets kept gains on Tuesday after reclaiming some ground to move off lows for the year the day before, as hopes grew that Europe would embark on fresh action to address its debt crisis while promoting growth.

Global stocks rebounded on Monday and riskier assets such as oil also rose, partly on expectations China will undertake further stimulus as it makes maintaining expansion a priority.

After a meeting of the G8 leading industrialised nations pledged to promote growth, markets were turning to a European Union summit on Wednesday, intended to focus on specific steps to spur growth and create jobs across the bloc.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6%, having recovered some ground the previous day after plunging to a 2012 low on Friday.

Japan's Nikkei stock average opened up 1%.

The euro held steady around $1.2810, keeping some distance from a four-month low of $1.2642 hit on Friday when concerns about Greece exiting the euro were compounded by mounting banking stress in Spain.

Appetite for the yen, widely seen as a safe-haven currency, retreated slightly, with the currency trading away from its three-month high near 79 yen hit on Friday. The yen stood at 79.36 yen on Tuesday.

"The last 12 hours has given us the first signs of a meaningful correction in FX," said ANZ in a research note. "It's impossible, quite frankly, to know whether this is THE turn, or just a correction. At the very least, however, we wouldn't be fighting it yet," it said, adding the key was the EU summit.

Given that market sentiment had turned extremely bearish on the Greek political turmoil, if the EU meeting at the very least indicates a shift in approach to the euro zone crisis, the correction in currencies will likely extend a bit, it said.

U.S. crude futures added 0.3% to $92.83 a barrel on Tuesday, after adding 1.19% the day before. Brent rose 0.4% to $109.28 a barrel after gaining for the first time in four sessions on Monday and settled up 1.56%.

Asian credit markets were slightly firmer early on Tuesday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by two basis points.

At Wednesday's informal EU meeting, France's new president Francois Hollande is likely to propose mutualising European debt.

The idea of bonds jointly underwritten by all euro zone member states could fend off contagion of funding difficulties from troubled euro zone economies, but Germany remains opposed.

Faced with deteriorating health of its banks, Spain called for urgent solutions to guarantee financial stability, rather than debates on instruments such as euro bonds. On Friday, Spain revised up its estimated 2011 budget deficit.

Market gauges showed players remain guarded against funding stresses, with the three-month spread between Libor rates and overnight index swap rates holding steady at around 30 basis points over the past two months, after shrinking from 55 basis points.

The cost of insuring five-year Spanish debt against default has surged 54 basis points in a month to 556 basis points.