Asian markets have closed mixed, with Europe's debt woes casting a shadow but relief provided by news of Chinese manufacturing activity hitting a five-month high.
Most bourses reversed earlier losses on Tuesday that were fuelled by renewed concerns that the weight of eurozone sovereign debt would force Spain to seek a full state bailout.
Trade remained cautious after ratings agency Moody's downgraded its outlook for Germany, delivering a stark warning that not even Europe's largest and most pivotal economy was immune from the rolling crisis.
Tokyo ended 0.24 per cent, or 20.23 points, lower at 8,488.09, but Seoul added 0.25 per cent, or 4.49 points, to 1,793.93 and Sydney climbed 0.1 per cent, or 4.3 points, to 4,133.2.
Hong Kong, which opened late after a severe typhoon hit the southern Chinese business hub, closed 0.79 per cent, or 150.27 points, lower at 18,903.20, while Shanghai advanced 0.24 per cent, or 5.19 points, to 2,146.59.
In Europe the focus is now on Spain, which saw its borrowing costs climb on Monday to a level considered unsustainable, sparking fears that the eurozone's fourth-largest economy may require a bailout.
The yield - the rate of return investors earn - on the benchmark Spanish 10-year government bonds jumped to 7.498 per cent from 7.225 per cent on Friday, well above the seven per cent danger level for long-term funding.
Madrid's troubles sent global markets spiralling downward on Monday amid fears of another economic downturn.
Adding to the gloom was news that Moody's revised down its outlook on the sovereign ratings of Germany, the Netherlands and Luxembourg from stable to negative.
On Wall Street the Dow fell 0.79 per cent, while European stocks took a pummelling. However, London, Paris and Frankfurt were all in positive territory in early European trade on Tuesday.
Eyes were also on Greece, with auditors from the European Union, International Monetary Fund and the European Central Bank due in Athens this week for another inspection of the new government's economic program.
The report will determine whether Greece will receive fresh loans of 31.5 billion euros due by September under its debt rescue program.
However, there was a little respite from recent bad news, with banking giant HSBC saying that its Purchasing Managers' Index (PMI) for China - which measures manufacturing activity - had hit a five-month high in July.
The preliminary figure hit 49.5 this month, well up from the 48.2 recorded in June, which HSBC said indicated that government measures to boost growth in the world's second-biggest economy, including interest rate cuts, were working.
A PMI reading above 50 indicates expansion, while a reading below 50 indicates contraction, and while the data remained negative it provided some hope that the country's manufacturing sector was heading in the right direction.
On currency markets the euro bought $1.2100 and Y94.63 in European morning trade, down from $1.2137 and Y95.13 in New York.
However it was an improvement from Asian trade Monday when it dropped to Y94.24, its lowest level since November 2000.
The dollar traded at Y78.21, against Y78.37 on Monday, as the Japanese currency is increasingly seen as a safe-haven unit amid turmoil in Europe and an uncertain US economic recovery.
The swings on the currency markets came as Japan's Finance Minister, Jun Azumi, repeated warnings about the yen's soaring value and hinted at another possible currency market intervention in a bid to tame the unit.
"We will not rule out any measures against excessive moves and will take decisive action when that's deemed necessary," he told reporters.
Oil was on the up. New York's main contract, light sweet crude for September delivery, gained 10 cents to $88.24 a barrel in afternoon trade and Brent North Sea crude for delivery in September was 15 cents higher at $103.41.
Gold was at $1,573.81 at 1040 GMT (2040 AEST) from $1,571.22 on Monday.
In other markets:
- Singapore climbed 0.53 per cent, or 15.95 points, to 2,998.44.
Singapore Telecom gained 0.29 per cent to Sg$3.46 and Keppel Corp added 1.18 per cent to Sg$11.19.
- Taipei fell 0.29 per cent, or 20.38 points, to 7,008.35.
Leading smartphone maker HTC shed 2.26 per cent to close at Tw$280.5 while Taiwan Semiconductor Manufacturing Co was 0.67 per cent higher at Tw$74.8.
- Manila closed 0.40 per cent, or 20.34 points, higher at 5,159.74.
Ayala Corp. added 1.17 per cent to 415 pesos, while unit Ayala Land gained 0.20 per cent to 19.94 pesos.
Metropolitan Bank climbed 2.47 per cent to 95.30 pesos.
- Wellington eased 0.13 per cent, or 4.66 points, to 3,460.70.
Telecom lost 0.6 per cent to NZ$2.525, Air New Zealand was up 0.55 per cent at NZ$0.91 and Fletcher Building was steady at NZ$5.81.
- Kuala Lumpur eased 0.22 per cent, or 3.60 points, to 1,632.57.
Gaming giant Genting Malaysia fell 1.1 per cent to 3.46 ringgit, while utility Tenaga Nasional slipped 0.5 per cent to 6.69 ringgit. Hong Leong Bank added 0.2 per cent to 13.32 ringgit.
- Jakarta fell 0.44 per cent, or 17.68 points, to 3,992.11.
Car maker Astra fell 0.8 per cent to 6,350 rupiah, Telkom slid 2.2 per cent to 8,750 rupiah and nickel and gold miner Antam decreased 2.3 per cent to 1,270 rupiah.
- Bangkok rose 0.21 per cent, or 2.53 points, to 1,187.64.
Banpu was unchanged at 440.000 baht, while PTT lost 1.53 per cent to 321.00 baht.
- Mumbai rose 0.24 per cent or 40.73 points to 16,918.08.
Hindustan Unilever rose 7.5 per cent to a record 476.05 rupees. Software firm Wipro slid 2.93 per cent to 346 rupees.
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