Asian shares rose on Monday, boosted by a positive tone in U.S. equities last week, while the yen fell to a near seven-month low against the dollar on expectations a new government after next month's election in Japan may deliver more stimulus.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, recovering from Friday's nine-week low.
Its energy sector outperformed as mounting supply concerns on escalating tension from Israeli air strikes on the Gaza Strip and Hamas rocket attacks on Israel underpinned oil prices.
The material sector also were among top gainers as London copper rallied 1 percent to $7.684 a tonne on expectations for economic measures in China and hopes for a solution to the U.S. fiscal crisis.
Australian shares inched up 0.2 percent but Shanghai shares underperformed with a 0.3 percent drop, hovering near the seven-week low touched on Friday.
We had some positive leads from the U.S. on Friday. Our market had been underperforming last week, Peter Esho, chief market analyst at City Index, said of Australian equities.
There's some hope that the negotiations in the U.S. around the fiscal situation may somewhat improve -- the prospects around that may improve this week.
Japan's Nikkei average, which bucked the broad Asian downtrend on Friday and surged 2.2 percent, extended gains with a 1.3 percent climb to a two-month high. Speculation that the leader of the opposition Liberal Democratic Party, which is expected to win the Dec. 16 elections, will call for more stimulus including further aggressive easing by the Bank of Japan also undermined the yen.
The BOJ begins a two-day policy meeting on Monday, and is expected to refrain from taking fresh policy steps.
The dollar hit a near seven-month high against the yen at 81.59 yen on Monday. A weaker yen helps support the economy and boosts sentiment for Japanese equities investors.
A senior trader at a foreign bank said investors had been underweight Japanese equities and the rally could have further to go as they start to put their money into Japan, advising investors to cover their positions in very heavily short-sold sectors such as electronics.
FISCAL CLIFF, GREECE EYED
Aside from Japanese politics, market players closely watched negotiations among U.S. Congressional leaders to avoid a budget crisis, and prepared for European officials' meeting on Tuesday to discuss aid for debt-stricken Greece.
Hope that U.S. politicians