Asia stocks supported by global growth optimism, dollar strong

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks edged higher on Tuesday as investors took heart from further evidence of strength in the global economy, while the dollar hovered near a one-week high against its peers thanks to higher U.S. yields and a floundering euro.

Gains on Wall Street overnight also helped MSCI's broadest index of Asia-Pacific shares outside Japan rise 0.5 percent and back towards a decade-high struck earlier this month.

South Korea's KOSPI rose 0.3 percent, Australian stocks climbed 0.2 percent and Japan's Nikkei advanced 1.1 percent. Shanghai added 0.2 percent and Hong Kong's Hang Seng was 0.7 percent higher.

Equity markets have enjoyed strong support this year thanks to rising corporate earnings on the back of an improving global economy.

That confidence was again on display overnight, with upbeat data in Germany helping the benchmark DAX brush off worries over the collapse of German coalition government talks.

German data showed strong industrial activity, while the Conference Board's leading economic index for the United States rose 1.2 percent in October, double the rate economists polled by Reuters had expected.

Wall Street was led up by telecom and tech shares, with the Dow edging back towards record highs scaled two weeks ago.

In currencies, the dollar index against a basket of six major currencies stood near a one-week peak of 94.104 touched overnight.

The greenback was boosted by rising bond yields, with the two-year U.S. Treasury yield touching a nine-year high of 1.755 percent overnight.

The yield has risen as investors priced in more interest rate hikes by the Federal Reserve, while the Treasury is expected to increase debt issuance with a focus on short- and intermediate-dated maturities.

"The two-year yield appears to have risen too high now, as the Fed is only likely to hike rates twice at most next year considering current trends in U.S. wages and prices," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar was also lifted as the euro has been weakened by political risks arising from German Chancellor Angela Merkel's failure to form a three-way coalition government, thrusting Europe's biggest economy into a political crisis.

Merkel, whose conservatives were weakened after they won anelection in September with a reduced number of seats, said shewould inform the German president that she could not form acoalition, after the pro-business Free Democrats withdrew fromnegotiations.

"So another grey cloud has formed over euroland for investors to worry about. The euro may slide more in the days ahead unless a solution to Germany's government can be found, fast," wrote Carl Weinberg, chief economist at High Frequency Economics.

The euro was little changed at $1.1732 but remained near a six-day low of $1.1722 touched on Monday. A week ago, the common currency had rallied to a one-month high of $1.1862 on robust German growth data.

The dollar was steady at 112.640 yen, having bounced from a one-month low of 111.890 set overnight.

The Australian and New Zealand dollars were both slightly lower at $0.7536 and $0.6799, respectively.

Oil prices were little changed as expectations of an extended OPEC-led production cut were cancelled out by rising U.S. output.

Brent crude futures were at $62.25 per barrel, 4 cents above their last close. U.S. crude was 2 cents higher at $56.43 per barrel.

Spot gold crawled up 0.2 percent to $1,279.43 per ounce after sliding more than 1 percent overnight on the dollar's bounce.

(Reporting by Shinichi Saoshiro; Editing by Shri Navaratnam and Kim Coghill)