Asian shares rose on Monday with sentiment brightening at the start of the third quarter after Europe leaders agreed to shore up the region's troubled banks, but the euro gave up some of its gains amid concerns that the debt crisis is still far from over.
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.4%, after soaring 2.7% on Friday for its biggest one-day rise in more than six months. The MSCI Asia ex-Japan share index ended April-June down 7.4%, after rising for the previous two quarters.
Japan's Nikkei average trimmed early gains to stand up 0.2%, but kept above the key 9,000 level, which it reclaimed on Friday for the first time in 7 weeks.
Strong short-covering spearheaded Friday's broad-based rally as market players who had not expected European leaders to strike any fresh deals scrambled to cover negative bets, and fund managers remained cautious of the sustainability of "risk-on" momentum.
"Even though markets went up significantly on Friday night, we are still fairly cautious as to whether that's a sustainable move, given that the announcements from the summit were probably better than the actual detail of what's been delivered," said Andrew Pease, Sydney-based chief investment strategist at Russell Investments Asia Pacific.
The euro fell 0.4% to $1.2617, after spiking 1.7% against the dollar to a high of $1.2693 on Friday, its biggest one-day jump in eight months.
"Their agreement offered a direction but details are yet to be worked out, and that will limit the euro's upside," said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo. "Still, with concerns over the euro zone's debt crisis easing for now, the focus this week turns to U.S. data, including the monthly jobs report."
The dollar eased 0.1% to 79.79, after a closely watched Bank of Japan survey on Monday showed big Japanese manufacturers' sentiment improved in the second quarter from the previous quarter.
FUNDING CAPACITY CONCERNS
Euro zone leaders agreed on Friday to let their rescue fund inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states.
The step relieved credit market strains that had threatened to force struggling Spain into seeking an international bailout, pushing Spanish and Italian debt yields sharply lower.
EU leaders also pledged to create a single banking supervisor based around the European Central Bank in a landmark first step towards a European banking union.
But Russell Investments' Pease and others were less than convinced that the agreement would be implemented smoothly, paying particular attention to the size of rescue funds which they see as insufficient to bail out needy member states.
The EU's joint statement said that the euro zone's temporary EFSF and permanent ESM rescue funds would be used "in a flexible and efficient manner in order to stabilise markets" to support countries that comply with EU budget policy recommendations.
U.S. crude fell more than $1 or 1.5% to $83.72 a barrel, after shooting up $7.27 on Friday, the fourth largest daily gain in dollar terms since the contracts were launched. Brent shed more than $1, falling 1.7% at $96.10 a barrel after adding more than $6 for its biggest one-day rise since April 2009 on Friday.
Oil futures were hit by data over the weekend showing China's government purchasing managers' index fell to 50.2 in June to a seven-month low, suggesting growth in manufacturing sector activity at big, state-backed firms was close to stalling. Shrinking new orders and the steepest fall in export orders since December pointed to no immediate pick-up for the world's second-biggest economy.
A private sector survey showed on Monday that China's factory activity at smaller, private-sector companies also shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009.
