Asian shares recover after Bernanke reassures, Italy weighs

TOKYO (Reuters) - Asian shares rebounded on Wednesday, tracking U.S. stocks higher as the Federal Reserve Bank reassured markets of its commitment to strong monetary stimulus, but investors remained wary of political gridlock in Italy reigniting the euro zone financial crisis.

Federal Reserve Chairman Ben Bernanke strongly defended the Fed's bond-buying stimulus before Congress on Tuesday, assuaging worries that monetary policymakers might be getting cold feet.

U.S. stocks jumped on Bernanke's comments, bucking a downward trend in global equities and oil prices from the uncertainty created by Italy's election which gave no political parties a parliamentary majority, posing the threat of prolonged instability in the euro zone's third-largest economy.

Euro zone shares sank to three-month lows on Tuesday.

The MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.3 percent after shedding 1.2 percent to a seven-week low the previous session.

Australian shares added 0.5 percent, after slipping 1 percent the day before.

"The KOSPI will get a boost from the rally in U.S. markets following Bernanke's comments," Kim Sung-hwan, an analyst at Bookook Securities, said of South Korean shares which opened 0.5 percent higher.

Japan's Nikkei stock average opened up 0.2 percent, after tumbling 2.3 percent the day before, moving further away from Monday's 53-month closing high.

Investors were also wary of $85 billion in automatic, across-the board government spending cuts in the United States due on Friday unless lawmakers reach a budget deal to avoid them.

U.S. data on Tuesday painted a positive growth outlook, with new home sales jumping 15.6 percent to a 4 1/2-year high in January, while U.S. consumer confidence rose more than expected this month.

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Italy led a sell-off in lower-rated euro zone debt on Tuesday, pushing 10-year Italian bond yields up to 4.90 percent, their highest since mid-December, leading Spanish and Portuguese yields higher.

U.S. Treasuries yields held near one-month lows on Tuesday, supported by safe-haven demand from investors worried about the situation in the euro zone.

"It is one thing to have a surge in yields on Italy debt; it is another thing to talk about a bailout of Italy and we are not close to anything like that, at this time. It's just a massive repricing event, and that's enough to pull funding away from equities in the short-term," said Richard Hastings, macro strategist at Global Hunter Securities.

The euro steadied around $1.3064, after falling to a seven-week low of $1.3018 on Tuesday.

The yen traded down 0.2 percent against the dollar at 92.17. The yen hit its lowest since May 2010 of 94.77 on Monday before the outcome of Italian vote rattled financial markets and sent the yen soaring to 90.85 yen. The yen was also down 0.3 percent against the euro to 120.41 after jumping to 118.74 on Monday from its day's low of 125.36.

Traders have said the rapid pace of yen weakening over the past three months has probably paused, with markets looking for a fresh catalyst -- including the Bank of Japan's actual rather than proposed unconventional easing steps, and Japanese investors buying foreign assets.

"The money flows into short yen trades are slowing, and the risk of losing on short yen action has increased significantly in recent days," Hastings said.

U.S. crude was up 0.2 percent to $92.79 a barrel, recovering from Tuesday's low of $91.92, its lowest since January 4.

(Additional reporting by Somang Yang in Seoul; Editing by Eric Meijer)

Updated Date: Feb 27, 2013 06:15 AM

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