Shares recovered on Tuesday from the previous day's plunge, as sentiment improved on hopes Spain would use public funds to bolster its struggling banks, although persistent wariness over Greece weighed on the euro.
MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.1 percent, having slid more than 2 percent the day before for its worst daily fall in about five months and hitting its lowest in about three months.
Japan's Nikkei stock average rose 0.6 percent, after suffering its biggest fall in six months and hitting a three-month low on Monday.
US stocks ended nearly flat and most European markets rose, with banking sectors outperforming as Spain signalled it was opening the door to using public funds to aid the country's troubled lenders.
"Spain is a much bigger economy compared with Greece or Portugal, so public funds will have to be injected because a bankruptcy scenario just isn't an option there," said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
London copper was boosted by bailout hopes for Spanish banks, rising 0.6 percent to $8,223.50 a tonne, after falling 0.7 percent on Monday.
"I think that today people are having a few second thoughts and thinking that maybe the political situation isn't that volatile in Europe and so we have bounced back a little bit, but clearly we haven't recovered all of yesterday's losses," said Damien Boey, equity strategist Credit Suisse, about the Australian market which added 0.3 percent, led by mining stocks.
GREECE BACK IN FOCUS
The euro recovered from Monday's low of $1.2955, its lowest since January 25, hit after an anti-austerity backlash by voters in Greece and France caused jitters across markets as the defeat of incumbents raised fears that Europe's collective efforts to resolve the euro zone's debt crisis may falter.
The euro eased 0.2 percent at $1.3031 while the Australian dollar, another gauge of investor risk appetite, fell 0.3 percent at $1.0175, also off a four-month low of $1.0110 hit on Monday.
Evidence of deep public resentment against using severe austerity measures to solve Europe's refinancing problems prompted the International Monetary Fund (IMF) to show some new flexibility on Monday over how quickly it would press deeply indebted countries to bring their budgets under control if economic growth weakens.
The shift in tone could prove important for Greece, where Europe's sovereign debt crisis began in 2009.
Sunday's election stripped Greece's two mainstream parties that backed a painful European Union/IMF bailout of their parliamentary majority, reviving uncertainty over whether Athens will stay in the euro zone.
Sebastien Galy, strategist at Societe Generale, said the next key events included negotiations for a coalition government in Greece and the announcement of some form of bad bank scheme for Spain.
The chairman of ailing Spanish lender Bankia SA stepped down on Monday, and sources said a government announcement on Bankia could come on Friday once a successor is in place.
While strict fiscal discipline could aggravate the already shrinking euro zone economy, some analysts caution that pursuing growth-oriented policies also won't help solve the core debt issue.
"European issues are more structural than cyclical, with external and fiscal imbalances at the core. This implies that boosting growth with more spending or lower taxes would only bring temporary relief, at best, as borrowing against future demand would only exacerbate solvency concerns," said Barclays Capital analysts in a research.
"Bank recapitalization seems to be the best option for Europe to get the biggest bang for their bucks," they said.
Oil was mixed on Tuesday, with U.S. crude futures down 0.1 percent at $97.80 a barrel after tumbling to a low of $95.34 on Monday while Brent crude gained 0.3 percent to $113.44, rebounding from Monday's lows near $110 per barrel.
Hattori at Mitsubishi UFJ Morgan Stanley Securities said economic fundamentals were still the main driver for markets, with the United States only showing moderate pace of growth.
Several Federal Reserve officials were due to make speeches this week and likely reiterate their pledge to keep a very accommodative monetary policy in light of the fragile economy, Hattori said.
Analysts said Chinese data due later this week, including trade balance figures, consumer prices and industrial output, was also in focus. Weaker data from the world's second-largest economy could underscore how vulnerable the global growth outlook is and dent investor risk appetite.
Sentiment was slightly better in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by 1 basis point.