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HONG KONG (Reuters) - Asian stocks held ground on Tuesday though Chinese equities surged to a fresh 2-1/2 month high as domestic funds piled into financial counters on expectations the world's second biggest economy may have turned a corner.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent on Tuesday and held below a 19-month peak hit last Thursday. The index is up more than 11 percent since Dec. 23, which marked the trough in a selloff triggered by Donald Trump's surprise win at the U.S. election in November.
With U.S. markets closed for the Presidents Holiday on Monday, Asian markets have had few global cues off which to trade. European markets are broadly expected to follow in Asia's wake and seen drifting in a narrow band.
Chinese stocks led regional gainers with mainland indexes extending a nearly 7 percent rise over the last month thanks to an influx of fresh funds from domestic institutional investors and a brightening outlook for the domestic economy.
"We upgraded our China equities call last month because of the strong economic data and comments coming out from the new U.S. administration pointing to a softer stance towards China," said Francis Cheung, head of China-Hong Kong strategy at CLSA.
China's blue-chip index clocked its best day in six months on Monday on reports pension funds will begin pumping in funds into the country's stock markets. Meanwhile, turnover in Hong Kong shares has jumped noticeably in recent weeks.
Despite the bounce in mainland stocks, valuations remained broadly middle of the pack in Asia with price-to-earnings multiples for Chinese stocks at 19.7, far below Australia's and India's at 25 and 23, respectively.
Some investors such as Lan Wang Simond, manager of the Mandarin Fund at Pictet Asset Management, are cautious about companies in the old economy such as manufacturing giants who have not adapted to changing demand patterns.
In currency markets, the euro nursed overnight losses as lingering concerns about the looming French election rattled the currency region's bonds.
The single currency declined to $1.0581, having moved little on Monday, due partly to the absence of U.S. investors because of the public holiday. It has fallen nearly 2 percent so far this month.
Political concerns have been front and centre of investors' minds over the past week or so, with markets wary about the outcome of the French elections in the wake of Brexit.
"Everybody has learned lessons from last year's big surprises. People probably don't want to take big risks. The euro could face further pressure given there's still time before the election," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
The premium investors demand to hold French bonds instead of German debt rose to its highest since late 2012 after a poll showed the far-right Marine Le Pen narrowing the gap with more centrist opponents.
The latest French poll overshadowed optimism that Greece may avert another crisis after a government official said the country had agreed with euro zone finance ministers to resume negotiations over its bailout review.
Fears that cooperation on the left could lead to a run-off between Socialist candidate Benoit Hamon or hard-left candidate Jean-Luc Melenchon and Le Pen, eliminating three main moderate candidates, have dogged the euro since Friday when the two leftists said they were discussing such cooperation.
Closer to home, the Philippine peso' hit a fresh 10-year low against the greenback on Tuesday after it broke key support levels in the previous session though some likely selling by large state-run banks checked losses.
Ten-year U.S. government bond yields held around 2.44 percent while 30-year Japanese bond yields held at one-year high on growing views the central bank will tolerate a yield rise in those maturities.
Oil prices were broadly steady after having suffered the first weekly decline in five weeks as the market weighed rising U.S. drilling and record stockpiles against efforts by major producers to cut output to reduce a global glut.
Brent futures rose to $56.24 a barrel, while U.S. West Texas Intermediate crude for April delivery added 0.6 percent to $53.71 a barrel.
Additional reporting by Hideyuki Sano in TOKYO; Editing by Shri Navaratnam and Sam Holmes