TOKYO Asian shares and the euro rose on Monday as further signs of a stabilising Chinese economy boosted investor risk appetite, offsetting worries that stagnant U.S. budget talks could threaten to derail the world's largest economy.
A firm manufacturing survey from Asia's fourth-largest economy, South Korea, also brightened mood, while data from Australia showing sluggish retail sales and labour demand and tame inflation raised expectations the Reserve Bank of Australia may cut interest rates at its meeting on Tuesday.
India will report its manufacturing data later in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.4 percent to a fresh nine-month high, after closing at its highest since February 29 on Friday, and a touch below 2012 highs. Hong Kong shares extended gains, hitting fresh intra-day highs on the year.
The pace of activity in China's vast manufacturing sector quickened for the first time in 13 months in November, with the final reading for the HSBC Purchasing Managers' Survey (PMI) rising to 50.5 in November, further evidence that the economy is reviving after seven quarters of slowing growth.
China's official PMI hit a seven-month high of 50.6 for November, according to a manufacturing survey over the weekend, while an official PMI survey of non-manufacturing sectors ticked up to 55.6 in November, led by construction services.
The euro rose to a six-week high against the dollar at $1.3048, after the upbeat data on Chinese manufacturing helped to trigger stop-loss buying of the common currency.
"There is growing confidence that China's economy bottomed in July-September, with signs of firmer external demand," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.
"Sentiment is supported because the gradual recovery in Asian economies comes against the backdrop of low interest rates environment, which won't be changed anytime soon, so the recovery in risk sentiment is likely to extend into next year," he said.
The favourable Chinese data and hopes of a rate cut saw Australian shares up 0.7 percent to a five-week high.
South Korean shares rose 0.3 percent to their highest in more than six weeks, buoyed by weekend data showing exports posted their first back-to-back growth of the year and a private manufacturing survey on Monday showing a the pace of contraction slowed in November.
Japan's Nikkei stock average added 0.7 percent to a fresh seven-month high, extending gains from Friday.
"My understanding of the current market move is mainly due to the catch up of high-beta exporting companies due to the global economic trend ... This process of catch up will continue until the Nikkei hit 10,000," said Ryota Sakagami, chief strategist at SMBC Nikko Securities, of Nikkei.
Japanese firms raised spending on plant and equipment in the third quarter for a fourth consecutive quarterly rise, in the latest sign the world's third-largest economy may have seen the worst from the effect of slack global demand.
ANXIETY GAUGE MIXED
Major stock market indexes closed little changed and Treasury yields slipped on safe-haven demand on Friday as the stalemate in U.S. budget talks fuelled concerns about slowing U.S. economic growth.
European stocks ended Friday slightly down but posted solid monthly gains, thanks to growing views that the worst of Europe's debt crisis is over.
The Euro STOXX 50 Volatility Index, Europe's widely-used measure of investor risk aversion, fell to its lowest level not seen since mid-2007 of 16.26 on Friday.
Data from EPFR Global showed on Friday that worldwide, stock funds took in $14.86 billion in the week ended November 28, the second-largest total since 2008, while investors pumped the most into U.S. stock funds in over a year even as U.S. lawmakers sparred over planned budget cuts.
But the CBOE Volatility Index, which reflects anxiety in the Standard & Poor's 500 index, jumped 5.4 percent on Friday for its largest daily gain in two weeks.
The euro fell on Friday after Moody's downgraded the credit ratings on the European Stability Mechanism and the European Financial Stability Fund last week, but the drop was limited.
The dollar steadied at 82.34 yen, not far from a 7-1/2-month high of 82.84 yen touched on November 22.
Data from the Commodity Futures Trading Commission released on Friday showed currency speculators in the latest week boosted short yen positions to the highest since the beginning of May, 2007, riding on speculation that a likely change in Japan's government would lead to more aggressive monetary easing.
Both U.S. crude futures and Brent inched up 0.3 percent to $89.16 a barrel and $111.57 respectively, while London copper also gained 0.3 percent to $8,018 a tonne.
Spot gold crawled up 0.3 percent to $1,719.71 an ounce, as a 0.2 percent drop in the dollar against a basket of key currencies made dollar-based commodities less expensive for holders of non-dollar currencies.
(Additional reporting by Dominic Lau in Tokyo; Editing by Michael Perry)