Asian shares rose on Tuesday as recent selling drew bargain hunters ahead of more U.S. economic data and a Federal Reserve policy decision later in the week that may offer clues to the Fed's stimulus plans.
The Nikkei share average edged up as investors welcomed a newspaper report that major banks were likely to have significantly larger profits this year, while small caps such as bio-chemical stocks attracted retail investors.
Sumitomo Mitsui Financial Group (SMFG), Mizuho Financial Group and Mitsubishi UFJ Financial Group (MUFG) rose between 2.9 and 4.4 percent after the Nikkei newspaper said the recent stock rally would boost the value of banks' own shareholdings and their net profit in the current fiscal year.
The Nikkei rose 0.4 percent to close at 10,866.72, or 1.2 percent below a 32-month high of 11,002.86 reached on Monday.
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The broader Topix gained 0.8 percent to 920.76, with 3.47 billion shares changing hands, the same level with last week's average daily volume of 3.44 billion shares.
Such small caps as biotech companies were in demand from retail investors. Japan Tissue Engineering surged as much as 26 percent during the day before ending up 4.5 percent while DNA Chip Research jumped 17 percent.
South Korean shares rose on institutional bargain-hunting, with the auto and tech sectors gaining strongly after steep declines that were driven by a firmer won currency.
The Korea Composite Stock Price Index (KOSPI) gained 0.8 percent to close at 1,955.96 points, snapping four straight days of losses.
Tech heavyweight Samsung Electronics rose 2.7 percent, snapping losses after a 4-session decline wiped 15.9 trillion won ($14.54 billion) from its market capitalization as of Monday.
Automakers were one of the largest gainers, with Hyundai Motor up 4 percent while sibling Kia Motors rose 5.1 percent.
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Australian shares rallied 1.1 percent to a 21-month high led by financial stocks when trade resumed on Tuesday after a three-day holiday weekend.
Westpac Banking Corp helped lead the financial sector, soaring 2.4 percent to reach a 3-year high of A$28.22.
Australia's no.1 lender, the Commonwealth Bank of Australia jumped 1.8 percent to reach an all-time closing high of A$64.73.
The S&P/ASX 200 index finished the day 53.8 points higher at 4,889. The benchmark finished up 25 points at 4,835.2 on Friday. The market was closed on Monday for the Australia Day holiday.
Insurance companies fell as floods and storms hit Queensland and New South Wales states. QBE Insurance Group lost 2.7 percent. Suncorp dropped 1.9 percent.
New Zealand's benchmark NZX 50 index slipped 4.1 points, ending the day at 4,200.3.
China shares closed at their highest levels since mid-2012, with brokerages and mid-sized banks leading index gains for a second-straight session as retail investors piled in.
Shares of Bain Capital-backed GOME Electrical Appliance rose 1.1 percent despite China's second-largest home appliance retailer having said late on Monday that it expects to have suffered a loss last year partly due to its unprofitable e-commerce business.
Mid-sized Chinese banks were again strong after mainland media reported that the country's banking regulators may relax loan-to-deposit ratio limits to improve risk controls as interest rates are gradually liberalized, a move that will benefit smaller banks more in the short term.
Strength in the Chinese property sector helped limit losses in Hong Kong and propel mainland markets to new highs since mid-2012 as investors welcomed more news reports of a warming property sector in the world's second-largest economy.
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The official China Securities Journal reported that January land sales in Beijing hit a 11-year high, while the Shanghai Daily said that average homes prices in Shanghai rose to a 30-week high, though mainly due to demand at a high-end project in the city's Hongkou district.
The CSI300 of the top Shanghai and Shenzhen A-shares listings ended up 0.9 percent at 2,675.9, its highest close since May 8. The Shanghai Composite climbed 0.5 percent to its highest close since June 1.
Hong Kong shares slipped from Monday's 20-month closing high, underperforming Asian peers largely due to a weak Chinese banking sector after Goldman Sachs sold a $1 billion stake in Industrial and Commercial Bank of China (ICBC).
The Hang Seng Index closed down 0.1 percent at 23,655.2, slipping from its highest closing levels since May 31, 2011. The China Enterprises Index of the top Chinese listings in Hong Kong inched down 0.2 percent.
After the market closed on Monday, Goldman Sachs offered shares of ICBC at HK$5.77, a 3 percent discount to the day's near 2-year close at HK$5.95. On Tuesday, the shares slid 2.2 percent to HK$5.82 which pointed to a healthy demand for the stake sale, given that the stock dropped less than 3 percent.
China Vanke rose 2.8 percent to its highest since August 2009 in Shenzhen, while Poly Real Estate gained 1.9 percent in Shanghai. China Resources Land edged up 0.6 percent in Hong Kong.
In India, the benchmark BSE index ended down 0.6 percent, while the NSE was lower 0.5 percent after the country's central bank cut interest rates for the first time in 9 months.
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Finally, in Southeast Asia, Singapore's Straits Times Index fell 0.4 percent, while Malaysia's KLCI Composite ended flat.