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Asian shares hit one-week highs on Thursday, and commodity prices and the euro firmed, on signs that Europe was dealing urgently with Spain's banking crisis and that the United States could embark on fresh monetary stimulus.
Dovish comments from a senior U.S. Federal Reserve official and strong Australian jobs data cemented the bullish sentiment, sending the Australian dollar to three-week highs and pulling down safe-haven currencies such as the U.S. dollar and yen.
However, analysts and market players described the rally in shares and other risky assets as a rebound, not a turning point, and said buyers still needed to see genuine progress within the euro zone to tackle the region's worsening debt crisis.
"The core issue is not in the United States but in Europe. For risk aversion to disappear entirely, considerable improvements must be made in Europe," said Junya Tanase, chief foreign exchange strategist at JPMorgan Bank in Tokyo.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.8 percent and Japan's Nikkei average advanced 1.1 percent.
Those gains follow climbs for global stocks on Wednesday, with the benchmark Standard & Poor's 500 Index staging a major reversal above its 200-day moving average.
Fed Vice Chair Janet Yellen laid out the case for further easing monetary conditions on Wednesday, saying "it may well be appropriate to insure against adverse shocks".
Earlier, regional Fed officials from Atlanta and San Francisco said they were prepared to take more policy action to boost the erratic U.S. economic recovery - even though 10-year Treasury bonds are already yielding close to all-time lows.
The Fed's Beige Book summary of business activity showed on Wednesday that U.S. economic growth and hiring had picked up over the past two months - a contrast with last week's weak jobs data for May which sparked a sell-off across global markets.
Fed Chairman Ben Bernanke is due to testify on the U.S. economy before a congressional committee later on Thursday, and investors will be watching closely for any clues over policy ahead of the Fed's June 19-20 policy meeting.
Greg Gibbs, a currency strategist at Royal Bank of Scotland in Sydney, noted that Fed Vice Chair Yellen tended to side with Bernanke on monetary policy.
"It (Yellen's comment) probably does represent some shifting at the core of the Fed. It would probably be positive for risk and negative for the U.S. dollar," Gibbs said.
The dollar index , measured against a basket of major currencies, eased 0.1 percent while the euro steadied around $1.2570, moving away from Friday's low of $1.2288, its lowest in nearly two years.
The yen traded 0.2 percent lower against the dollar at 79.36 yen. U.S. Treasuries, another safe haven, also eased in U.S. trade, pushing up their yields, but Treasury futures ticked up after Yellen's comments on possible further stimulus.
AUSTRALIA TO THE RESCUE
Investors have rediscovered some appetite for risk amid evidence that European officials are urgently exploring ways to rescue Spain's troubled banks.
Spain faces market tests later on Thursday by issuing 1-2 billion euros ($1.3 billion-$2.5 billion), split between three bonds, the lowest target it has set this year.
Australia has offered further encouragement, adding 38,900 jobs in May to beat all expectations, the second surprisingly strong piece of data in as many days. On Wednesday, it reported robust economic growth of 1.3 percent in the first quarter.
The Australian dollar shot up to a three-week high against the U.S. dollar of $0.9967, and also gained about 0.5 percent against the yen to 79.10 yen, a two-week high.
Australia had just cut interest rates on Tuesday, citing the uncertain global environment, in a move that has fuelled hopes among investors that other central banks will follow suit.
However, the European Central Bank (ECB) kept interest rates steady on Wednesday and also dashed immediate hopes for another long-term tranche of cheap loans for European banks.
"Although there were no overt hints of immediate action from the European Central Bank, investors feel that the overall tone of global policymakers is accommodative of a breakthrough at the U.S. FOMC and EU leaders' summit scheduled later in the month," said Rhoo Yong-suk, an analyst at Hyundai Securities.
U.S. crude rose 0.5 percent to $85.50 a barrel, while Brent crude was up 0.3 percent at $100.92 on Thursday.
The cost of insuring against corporate and sovereign defaults in Asia eased further on Thursday, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 7 basis points.