Markets rebound, hoping for action on euro zone crisis

TOKYO (Reuters) - Asian shares, the euro and commodities rebounded on Tuesday, with stocks holding a touch above 2012 lows, as investors looked to European policymakers and the wider G7 to take decisive action to address the worsening euro zone crisis.

In a sign of heightened global alarm about strains in the 17-nation euro area, finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks by phone later on Tuesday.

Investors turned less pessimistic and looked for bargains in battered assets ahead of three major events this week: the G7 phone hook-up on Tuesday, the European Central Bank's policy decision on Wednesday and U.S. Fed Chairman Ben Bernanke's congressional testimony on Thursday.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 1.2 percent, after tumbling 2 percent during Monday's sell-off which had been sparked by last week's weak U.S. jobs data. The U.S. data followed bleak surveys of Chinese and European factory activity.

"Investors are pinning their hopes on the G7 and the ECB meetings and have taken on a bit of encouragement as well from signs of a German policy shift," said Ham Sung-sik, an analyst at Daishin Securities in Seoul.

"But we still need to see some tangible results to say a bottom has been carved out in the market."

The MSCI pan-Asian index's materials sector <.MIAPJMT00PUS> led the gains, putting the resources-reliant Australian equities among the region's best performers with a 1.1 percent rise.

Japan's Nikkei average <.N225> of major stocks also added 0.6 percent and Tokyo's broader Topix index <.TOPX> firmed 1 percent after the latter hit a 28-year low on Monday. <.T>

Shanghai copper bounced off its 2012 lows with a 1.5 percent jump on Tuesday, while U.S. crude up 1.1 percent to $84.91 a barrel, rebounding from its lowest in nearly eight months touched the previous session. Brent rose 0.8 percent to $99.63.

"Even though commodity prices have fallen, I don't expect they're going to go through the floor. Emerging countries are still growing ... There's still going to be appetite there," said David Spry, research manager at broker F.W. Holst.

The benchmark Thomson Reuters-Jefferies CRB index <.CRB>, a global commodities benchmark, settled up 0.6 percent on Monday for its sharpest gain since April 27, after dropping almost 11 percent in May, the second-largest monthly decline since 2008.

GOLD GAINS ON WEAKER DOLLAR

The euro rose 0.3 percent to $1.2527, recovering from Friday's trough of $1.2288, its lowest in nearly two years.

The Australian dollar, which is closely linked to risk appetite, also rallied further from an eight-month low hit on Friday, ahead of the Reserve Bank of Australia's rate decision at 0430 GMT, with players widely expecting a 25 basis-point cut.

The yen traded at 78.33 against the U.S. dollar, off its 3-1/2 month peak of 77.65 hit on Friday. The Japanese currency also eased further against the euro to trade at 98.15 yen, retreating from its strongest level since December 2000 of around 95.59 yen reached on Friday.

A 0.2 percent drop in the dollar index <.DXY>, measured against a basket of key currencies, lifted spot gold up 0.2 percent to $1,622.21 an ounce.

Bullion has been pressured recently by investors cashing in to cover losses as assets crashed across the board, but doubts about any immediate and effective tactics to contain the euro zone's debt crisis may be attracting investors back to the metal's traditional safe haven status.

A recovery in riskier markets reduced the cost of insuring against corporate and sovereign defaults in Asia, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 5 basis points.

G7, EU GRAB SPOTLIGHT

The previous session's heavy selling, which started in Europe and North America on Friday and continued into Asia on Monday, has spurred hopes for more monetary stimulus, both from the ECB and a possible third round of quantitative easing from the Federal Reserve, to help stabilize markets.

Eiji Kinouchi, chief technical analyst at Daiwa Securities, said the G7, holding discussions ahead of the ECB's policy meeting, "might probably put pressure on the ECB to do something and such expectations will help support stocks".

But a Greek election on June 17 remains a major uncertainty, with surveys showing supporters and opponents of Greece's international bailout are virtually neck-and-neck going into a vote that may decide the nation's future in the euro zone.

"It is difficult to see anything sizable ahead of the Greek vote. The ball is more on the political side," said Sebastien Galy, strategist at Societe Generale.

Contagion worries about Spain's banking troubles and Greece's potential exit from the euro zone have pushed up the cost of borrowing dollars. Eurodollar futures fell on Monday, implying a rise in future interbank borrowing costs for three-month dollars.

(Additional reporting by Hideyuki Sano in Tokyo, Sonali Paul in Melbourne and Joonhee Yu in Seoul; Editing by Alex Richardson)

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