Japanese stocks rose to a one-week high and the dollar strengthened on Thursday as investors grew hopeful that U.S. politicians will resolve in coming days the fiscal impasse that has sapped market confidence.
Tokyo's Nikkei share average advanced 0.9% to its highest point since the middle of last week, although shares elsewhere in Asia lost ground.
The Standard & Poor's 500 E-mini futures added 0.5%, pointing to a firmer open on Wall Street, while U.S. Treasury futures eased 13 ticks.
Financial bookmakers expected major European indexes to open up as much as 0.6%.
Investors have expected that a deal between the Republicans and Democrats would be reached by an October 17 deadline to raise the debt ceiling, despite the partisan politics, although their nerves are tested each day that passes without an agreement.
Republicans are considering signing on to a short-term increase in the government's borrowing authority to buy more time for negotiations on broader policy measures.
Strains in short-term interest rates and funding markets increased as the deadline nears, keeping investors on edge.
As the U.S. fiscal crisis escalated, Japanese investors sold a record amount of foreign bonds on a net basis last week, offloading nearly $23 bln worth.
This "suggests that a reversal may be likely, as this scale of selling of foreign bonds is unprecedented and may well lead to renewed foreign bond purchases by Japanese investors if and when the U.S. fiscal crisis is resolved," Societe Generale said in a note.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2%, dragged lower by Chinese and Hong Kong stocks.
China's CSI300 shed 1.1% and Hong Kong's Hang Seng Index lost 0.9%.
BREATHING SPACE
The dollar was up 0.4% at 97.785 yen, building on Wednesday's 0.5% rise as it pulled away from a five-week low earlier this week.
News that the Federal Reserve's decision last month not to reduce its $85 bln-a-month bond-buying programme was a "close call" also helped buoy the U.S. currency.
Against a basket of major currencies, the dollar gained 0.3% to 80.574, and is now almost a full point above an eight-month low hit a week ago.
As the dollar regained its footing, gold eased 0.3% to around $1,302.5 an ounce, adding to Wednesday's 0.9% decline.
U.S. crude prices added 0.2% to about $101.8 a barrel. Prices had tumbled 1.9% on Wednesday after the largest weekly buildup of U.S. stocks in a year added to the worries of a market already concerned that Washington's stalemate would curb demand in the world's biggest oil consumer.
