Asian markets rose again Tuesday, building on the strong start to the week as traders look ahead to the Federal Reserve's policy decision, hoping it will signal a more dovish approach to fighting inflation.
While Wall Street suffered a pullback from a recent rally, the mood in Asia remained optimistic while bargain-buying also provided some much-needed support to Hong Kong and Shanghai.
The Fed is widely expected Wednesday to announce a fourth straight 75-basis-point rate hike as it tries to rein in runaway prices, which has led to worries it will tip the world's top economy into recession, sending stocks tumbling.
But a report last month suggesting officials are looking to dial down the pace of increases has sparked a rally in risk assets over the past week, helped by signs other central banks are also trying to take a step back.
"Fifty basis points or 75 basis points in December is ultimately less important than the path (Fed boss Jerome) Powell lays out for next year," said Stephen Innes at SPI Asset Management.
"If push comes to shove, the Fed probably does not want to see the market pricing cuts as soon as the hike cycle finishes, so I expect the rhetoric to be targeted here."
Data showing eurozone inflation hit a record 10.7 percent last month -- fanned by a 41.9 percent rise in energy costs -- drove home the fine line banks must walk in battling rising prices while trying to cushion fragile economies.
That came as other figures showed manufacturing around the world is shrinking owing to the spike in prices and borrowing costs.
"A global manufacturing contraction is here," said OANDA's Edward Moya.
"Factory activity is taking a big hit as China struggles with Covid, Europe is headed towards a recession, and as the US economy finally feels the impact of inflation and Fed tightening."
In early trade, Hong Kong led the gains, jumping more than three percent thanks to a bargain-buying surge in beaten-down tech giants including Alibaba and Tencent.
Shanghai climbed more than one percent, along with Singapore and Seoul, while Tokyo, Sydney, Taipei and Bangkok. However, Jakarta and Wellington edged lower.
Investors are also keeping tabs on the earnings season, with Japanese giants Toyota and Sony among the big-name firms reporting.
The announcements come after a number of US companies have surprised with better-than-expected results, suggesting they are holding up despite the tough trading environment.
- Key figures around 0300 GMT -
Tokyo - Nikkei 225: UP 0.2 percent at 27,646.34 (break)
Hong Kong - Hang Seng Index: UP 3.7 percent at 15,224.90
Shanghai - Composite: UP 1.5 percent at 2,935.46
Euro/dollar: UP at $0.9905 from $0.9885 on Monday
Pound/dollar: UP at $1.1514 from $1.1465
Dollar/yen: DOWN at 148.20 yen from 148.72 yen
Euro/pound: DOWN at 86.04 pence from 86.20 pence
West Texas Intermediate: UP 0.8 percent at $87.18 per barrel
Brent North Sea crude: UP 0.8 percent at $93.59 per barrel
New York - Dow: DOWN 0.4 percent at 32,732.95 (close)
London - FTSE 100: UP 0.7 percent at 7,094.53 (close)