TOKYO - Asian shares rose to a 16-month high on Thursday after US President Barack Obama said a deal to avert the so-called fiscal cliff of year-end tax hikes and spending cuts was possible in "about a week" if Republicans compromise on taxes.
The $600 billion combination could push the US economy into recession unless Congress acts, but markets have kept up hopes for a compromise given the consequences of no action.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 per cent to reach a 16-month high and Japan's Nikkei stock average climbed 0.8 per cent to a seven-month high, as exporters drew support from a weaker yen.
The Korea Composite Stock Price Index (KOSPI) rose 0.4 per cent to a seven-week high, although the lack of a US fiscal deal was capping the upside potential of the market.
"The market is struggling to rise sharply, weighed down by concerns about an uphill political battle to reach a US fiscal deal," said Lee Kyeong-soo, an analyst at Shinyoung Securities.
Hong Kong shares hit a 16-month peak while the Shanghai Composite Index fell 0.2 per cent, retreating after a move on Wednesday above the 2,000-point mark for the first time since late November.
Year-end positioning was driving flows while investors waited for the European Central Bank's policy decision later in the day and US jobs data on Friday for clues on the state of the US economy after recent mixed reports.
"Today, sentiment is likely to be neutral in Asia, amid lack of major data and as investors look towards tomorrow's labour market report in the US," said Credit Agricole CIB analysts in a research report.
Market attention on US fiscal woes probably reflected more investor lethargy than any real US concern, they said.
"Once markets fully embrace a 'two-step' US fiscal solution between Democrats and Republicans (i.e. with any grand bargain coming in Q1 2013), a comparison of expected 2013/14 growth profiles clearly favours renewed (US dollar) strength,"they said.
The dollar edged up 0.1 per cent against a basket of major currencies. It traded at 82.49 yen, not far from a 7-1/2-month high of 82.84 hit on Nov. 22, on expectations Japan's Dec. 16 election will usher in a government that will apply more pressure on the central bank to revive the shrinking economy.