Asian stocks recover after Italy-fuelled sell-off

Asian stocks rallied while the euro held up and high-yielding currencies rebounded as investors rediscovered their desire for risk assets after the previous day`s losses fuelled by Italian uncertainty.

Regional markets were jolted and the euro tumbled to a 20-month low after Prime Minister Matteo Renzi said he would resign after losing a referendum on constitutional reform.

But attention is now turning back to the US Federal Reserve`s expected interest rate hike next week, with traders hoping it will give some indication of its plans for 2017 as Donald Trump embarks on a big-spending programme that will likely fan inflation.

"Investors shrugged off the anti-establishment messages from the Italian referendum to drive share prices higher," Michael McCarthy, chief market strategist in Sydney at CMC Markets, told Bloomberg News. 

"Attention now turns to the Fed`s interest-rate decision next week, the last listed major risk event for the year."

The Italian result sent the European single currency crashing to $1.0506 -- its lowest since March 2015 -- before it bounced back as traders await more developments out of Rome. In early Asian trade it bought $1.0762, having dallied earlier with $1.08.

However, there remain concerns that political instability could scupper the country`s efforts to resolve a bad loans crisis in the banking sector and spark fresh eurozone turmoil.

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On stock markets Tokyo ended the morning 0.5% higher, while Hong Kong was up 0.6% soon after opening and Shanghai added 0.2%.

Sydney gained 0.8%, Seoul was 1.1% higher and Taipei also put on more than 1%.

The gains were also ushered by a second record-high close for the Dow on Wall Street in three days, helped by a jump in activity in the key US services sector.

The renewed confidence provided support to Asia-Pacific currencies that have taken a beating in recent weeks because of growing expectations US borrowing costs will be hiked sharper than previously thought.

Australia`s dollar was up 0.4% against the greenback, South Korea`s won added 0.3% and the Indonesian rupiah gained 0.2%. The Malaysian ringgit, New Zealand dollar and Singapore dollar also posted healthy gains.

Oil prices turned sharply lower as the surge that greeted last week`s output-cut agreement between OPEC and Russia fades.

Key figures around 0230 GMT:

Tokyo - Nikkei 225: Up 0.5% at 18,370.83 (break)

Hong Kong - Hang Seng: Up 0.6% at 22,638.47

Shanghai - Composite: Up 0.2% at 3,211.77

Euro/dollar: Down at $1.0762 from $1.0768 Monday

Dollar/yen: Down at 113.70 yen from 113.77 yen 

Pound/dollar: Up at $1.2732 from $1.2724

Oil - West Texas Intermediate (WTI): Down 49 cents at $51.30 per barrel

Oil - Brent North Sea: Down 42 cents at $54.52

New York - Dow: Up 0.2% at 19,216.24 (close)

London - FTSE 100: Up 0.2% at 6,746.83 (close)