Asian shares rise, euro steadies on Europe hopes

TOKYO (Reuters): Asian shares rose and the euro steadied on Tuesday, keeping gains from the previous day as investors grew more confident about European leaders coming to a broad agreement to contain the region’s debt crisis.

European policymakers neared a deal over the weekend on bank recapitalization, and euro zone officials said France and Germany were close to agreement on how to use the European Financial Stability Facility to stave off contagion in the bond market.

But deep divisions over the extent of losses that private holders of Greek bonds would have to accept remain a huge risk and final decisions were deferred until a second summit scheduled for Wednesday, putting a cap on markets.

MSCI’s broadest index of Asia Pacific shares outside Japan rise 0.1 percent, while Japan ‘s Nikkei stock average opened up 0.25 percent.

The euro steadied but off the previous day’s peak when it hit its highest since Sept. 8 of $1.39570 against the dollar.

Oil kept its gains after U.S. crude jumped more than 4 percent to its highest level in more than two months on Monday. In heavy trading, the front month contract trade was higher than later months, flipping the curve structure into a bullish backwardation for the first time since 2008.

U.S. crude futures were up 0.3 percent to $91.50 a barrel on Tuesday.

On Monday, global stocks hit a seven-week high and commodities rallied on hopes Europe was moving closer to resolving the debt crisis.

Investor sentiment also improved, with Caterpillar Inc gaining 5 percent after reporting a 44 percent jump in quarterly profit on record revenues. Demand for its heavy equipment is seen as a gauge of global economic health.

Gains on Wall Street weighed on safe-haven U.S. Treasuries. Benchmark 10-year Treasury notes fell 4/32 in price for a yield of 2.23 percent on Monday.

But lingering worries about the extent of progress made over the euro zone sovereign debt problems pushed the spread between the yield on the 10-year Italian BTP benchmark bond and the equivalent German Bund wider on Monday to 388 basis points.

Still, the general improvement in sentiment about the European problems spread to Asian credit markets. The spreads on the iTraxx Asia ex-Japan investment grade index , a gauge for whether investor risk appetite is returning, narrowed by a couple of basis points early on Tuesday.