Asian shares steadied on Tuesday as investors saw weak regional and global economic data as raising the prospect for more stimulus from central banks to underpin growth, while Europe kept hopes alive for some progress in tackling its debt crisis.
Business surveys from the euro zone to China underscored a spreading contraction in manufacturing around the world as the euro zone's troubles took a deeper toll on their economies.
A 13-month-long contraction in the euro zone purchasing managers' index in August raised expectations the European Central Bank may cut its main interest rates at its meeting on Thursday.
Investors now eyed the U.S. Institute for Supply Management manufacturing data due later in the day, a key report that will help gauge the probability of further easing by the Federal Reserve at its September 12-13 policy meeting.
"The ECB meeting this week is important, but the U.S. ISM index will also be key, because if these numbers are bad there is a chance things will turn worse," said Chung Seung-jae, an analyst at Mirae Asset Securities in Seoul.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was barely changed. The index fell to a fresh four-week low on Monday before recovering to rise on global stimulus hopes.
European shares inched higher on Monday, with U.S. markets closed for a holiday.
Japan's Nikkei stock average <.N225> inched down 0.1 percent to hover near a four-week low touched on Monday. <.T>
The growth-sensitive Australian dollar hit a fresh six-week low of $1.0224 against the U.S. dollar and stayed near a nine-week low against the euro, undermined by concerns about slowdowns at home and in China, its largest export market.
Sluggish demand from the world's second-largest economy and leading consumer of raw materials have weighed on Australian shares as declining commodities prices, recently in particular the plunge in iron ore prices to their lowest levels since late 2009 <.IO62-CNI=SI>, hit miners.
"The recent sharp decline in commodity prices has caused profits to deteriorate significantly, such that miners are now spending more in capex than they are earning. This is not a sustainable situation," said Credit Suisse analyst Atul Lele.
Australia's third-ranked iron ore miner, Fortescue Metals Group , on Tuesday slashed capital spending and cut its expansion schedule for iron ore production, boosting its shares.
The Reserve Bank of Australia is expected to hold rates steady at 3.5 percent at Tuesday's meeting, but surprisingly weak retail sales fuelled speculation for a cut later this year.
ECB PRICED IN
The euro rose 0.2 percent to $1.2619, within reach of an eight-week peak of $1.2638 set on Friday.
Markets were already pricing in the ECB on Thursday to at least outline its bond-buying scheme aimed at containing the borrowing cost in struggling economies such as Spain. Such prospects have help cap Spanish 10-year yields below a critical level of 7 percent.
"While the white swan from the ECB's announcement of a new bond buying program was welcome, we remain concerned that new white swans will be slower in coming," Societe Generale said in a research note.
"This is nonetheless what defines the main upside. In China and the U.S., the upside is defined by more policy stimulus. Our fear is that such initially white swans, medium-term would turn to black," it said.
ECB President Mario Draghi told European lawmakers on Monday the ECB's purchases of short-term sovereign bonds would not breach the European Union's taboo of directly financing euro zone economies.
"The comments were not meant to be public but of course raised market expectations of the ECB meeting on Thursday," Westpac Institutional Bank said in a note.
Separately, German Finance Minister Wolfgang Schaeuble said on Monday he was sure the country's Constitutional Court at its September 12 ruling would not block treaties establishing a permanent bailout fund, the European Stability Mechanism (ESM), and strong budgetary regulations in Europe.
The ESM, meant to succeed the existing temporary European Financial Stability Facility, will provide a crucial firewall to contain the euro zone debt crisis and the ECB's bond-buying plan is conditional on its deployment.
Precious metals rose on speculation for additional monetary policy.
The most active U.S. silver futures contract rose nearly 3 percent to $32.38 per ounce, the highest since mid-April, while spot silver stayed near a 4-1/2 month high of $32.31 hit on Monday. Spot gold rose to $1,696.91 an ounce, the highest since mid-March.
U.S. crude rose 0.8 percent to $97.21 a barrel while Brent inched up 0.3 percent to $116.12.
Asian credit markets firmed, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by four basis points.
(Additional reporting by Christine Kim in Seoul and Victoria Thieberger in Melbourne; Editing by Michael Perry & Kim Coghill)