(Reuters) – The euro bounced back on Tuesday from a day-earlier selloff over euro debt woes following words of support from China, while stocks were firm across Asia as investors picked up end-of-year bargains.
Japan’s Nikkei average closed at a seven-month high.
Cold weather in Europe kept crude prices firm for a third straight session, driving energy-related stocks to be the biggest gainers in the MSCI Asia ex-Japan share index. U.S. Treasuries held steady, sticking to narrow price ranges.
Comments from Chinese Vice Premier Wang Qishan that China supports the measures taken by the European Union and the International Monetary Fund to calm global markets in the face of the euro zone’s debt crisis prompted a short-covering rally in the euro currency.
“We hope the measures can achieve some results as soon as possible,” Wang told EU trade and economic officials who were visiting China.
Still, China, which has invested an undisclosed portion of its $2.65 trillion in reserves in the euro, also urged European authorities to back their tough talk on debt with action.
The euro rose to $1.3194 after Wang’s comments, rising a full cent from a two-week low hit on Monday, when investors fled from the currency fearing more credit ratings downgrades in Europe.
Euro dropped on Monday as far as $1.3094 and hit a record low against the Australian dollar and the Swiss franc as investors fretted about further credit ratings downgrades in Europe.
The firmer tone of the currency also lifted it away form the record lows it struck on Monday against the Australian dollar and the Swiss franc.
Still, investors suspected the rise in the euro was simply a temporary reprieve for a currency that has dropped more than 6 percent against the dollar since hitting a 10-month high in early November.
“I still think the euro faces downside risks,” said Koji Fukaya, chief FX strategist at Credit Suisse. “The market will probably test the downside toward April, when Spain will have big redemptions of bonds.”
Stock investors looked beyond the euro zone risks for now to pick up stock ahead of the end of the year.
Japan’s Nikkei share average .N225 rose 1.5 percent for its highest close since May as investors rooted out bargains following two straight days of declines.
Major electronics maker Sony Corp (6758.T) gained 2.7 percent, construction machinery maker Komatsu Ltd (6301.T) climbed 1.5 percent and Mitsubishi Motors Corp (7211.T) added 2.5 percent.
“Investors are buying on dips, pushing the Nikkei higher after yesterday’s losses,” said Takashi Ohba, a senior strategist at Okasan Securities.
“The Nikkei was flat last week and traders waited for any positive factors to trade on — they got a good opportunity today so the market is posting solid gains,” Ohba said.