Investor demand for riskier assets made a tentative comeback on Monday, with commodity prices steadier and Asian stock markets scoring modest gains, a session after their biggest one-day fall in over four months.
Commodity currencies such as the Australian dollar clawed off the lows plumbed on Friday, when fears that fast-growing China will have to lift interest rates to curb inflation gripped markets.
But factors that unsettled investors on Friday persisted, suggesting the small bounce in risk assets was more a result of bargain hunting after the selloff, rather than a sustained recovery in risk appetite.
There was little clarity on Ireland's funding problems after the country did not rule out the possibility it may have to turn to Europe for help in dealing with its debt crisis, but said no application had been made for assistance yet.
"Overall, sentiment remains fragile as European bond concerns taken together with worries about monetary tightening in China have resulted in risk appetite declining," said Mitul Kotecha, head of global fx strategy at Credit Agricole in Hong Kong.
Data showing Japan's economy grew more than expected in the third quarter did little to cheer investors and many economists expect the economy to slow, or even contract, in the fourth quarter as consumption and exports lose momentum.
Markets also drew no comfort from the G20 and APEC meetings, which left leaders of the world's most powerful economies little closer to agreeing how to prevent fresh crises.
Many analysts said markets had been due for a pullback regardless, as profit taking set in after a months'-long rally and traders prepared to close their books heading into year-end.
The MSCI index of Asia Pacific stocks outside Japan rose 0.2%, having slid 1.9% on Friday in its the biggest one-day percentage fall since late June. For the week, the index dropped 3.4%.
Japan's Nikkei average climbed 0.7% and South Korea's KOSPI edged up 0.5%. Australia's S&P/ASX 200 index advanced 0.4%.
China's key stock index inched 0.1% higher, after Friday's 5.2% tumble, while Hong Kong's Hang Seng index edged up 0.3%.
BHP JUMPS AFTER TAKEOVER SCRAPPED
Among the gainers, BHP Billiton rose 0.4%, after the top global miner scrapped its $39 bln bid for Potash Corp and said it would return $4.2 bln to investors through a share buyback.
With the selloff in risky assets appearing to pause, the U.S. dollar softened, and the euro and commodity currencies recovered some lost ground.
The euro popped above $1.3700, having traded as low as $1.3571 — a level not seen since late September.
The Australian dollar climbed towards $0.9900, off the low of $0.9825 set on Friday, but it still remained some 3% below a 28-year high around $1.0182 set last week.
"Still, we don't want to sound too gloomy because we aren't," said John Kyriakopoulos, fx strategist at National Australia Bank, about the local currency.
He noted a recovery in China's manufacturing PMIs since July pointed to a re-acceleration in industrial production growth, which should be supportive of commodity prices.
In Europe, he expected the 750 bln euro stabilisation fund would limit the fallout from Ireland, while the U.S. Federal Reserve printing another $600 bln could put a high floor under stock prices.
On the London Metal Exchange (LME), benchmark copper climbed 0.6% to $8665.00 a tonne, having fallen almost 3% on Friday, while gold rose to $1,372.25 an ounce from a one-week low of $1,359.70 seen on Friday.
U.S. crude oil rose above $85 a barrel from one-week lows of $84.52 plumbed on Friday, still not far off a 25-month high of $88.63 hit last Thursday.
