Oil prices and shares of resource producers rose on Tuesday as Israel began a fourth day of attacks on the Islamic group Hamas, while the flare-up of violence stirred caution among investors at year-end and dented the dollar.
Japan's Nikkei average climbed 1.3 percent to a seven-week peak in a holiday-shortened session, but wrapped up its worst year on record with a loss of 42 percent after the financial crisis and surging yen drove the country's economy into a recession.
The jump in oil and gold prices drove the dollar lower, though moves were choppy as many market players have already put the finishing touches on their portfolios for the year and have shifted to the sidelines.
Israeli warplanes killed 10 Palestinians on Tuesday in attacks targeting government buildings and other symbols of Hamas in the fiercest air offensive in Gaza in four decades, stirring concerns about Middle East energy supplies.
"There's a lot of new uncertainties out there, such as the whole Israeli issue, but it is giving some support to resource-linked shares," said Tomomi Yamashita, a fund manager at Shinkin Asset Management in Tokyo.
Stocks have gradually recovered from this year's lows hit in November for many indexes as governments have lined up hefty stimulus spending packages and central banks have slashed interest rates to try to revive growth.
Investors have also pinned their hopes on U.S. President-elect Barack Obama, whose team has been working with Congress on a fiscal stimulus that he is expected to sign shortly after taking office on Jan. 20.
Seoul's KOSPI rose 1.7 percent to 1,136 points, snapping a five-session losing streak on gains in blue-chip shares such as Samsung Electronics.
"We think expectations for economic recovery and the effects of economic stimulus measures on the real economy will boost stocks to as high as 1,500 in the first half of 2009," said Lee Sun-yeob, a market analyst at Goodmorning Shinhan Securities in Seoul.
U.S. crude oil prices were up 20 cents at $40.22 a barrel, rising for a third day but on track to end the year down 60 percent. Gold dipped 50 cents an ounce to $877.00 after hitting a 2-1/2-month high of $889.55 on Monday.
DOLLAR RETREATS, BONDS GAIN
The dollar lost more ground as the Middle East troubles sparked buying of the Swiss franc and euro. The euro climbed 1.2 percent to $1.4102 after a volatile session the previous day saw it tumble more than 4 cents from its intraday peak.
The dollar has also surrendered gains made earlier in the year as the extreme aversion to risk among investors has relented and U.S. investors have slowed some of their big repatriation of overseas investments.
Government bonds rose as investors favoured their safety over the New Year's holidays, with the benchmark 10-year Japanese government bond yield falling 3.5 basis points to 1.165 percent and hitting a five-year low of 1.155 percent.
For the year 10-year JGB yields have fallen 33.5 basis points, the biggest yearly drop since 2002 — when Japan was last mired in recession and suffering from deflation.
U.S. Treasuries climbed in Asia trade. The benchmark 10-year note was up 13/32 in price to yield 2.069 percent, down 4 basis points on the day and near a five-decade low of 2.04 percent struck last week.
