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Asia stocks extend gains on China rally; Fed, US GDP in focus

Asian stocks rose for a second session on Tuesday on hopes that growth in the world's second-largest economy has finally stabilized.

Investors have turned increasingly optimistic on China in recent sessions on the back of improving economic data such as HSBC's July factory activity report, sending the Shanghai Composite to seven-month highs and Hong Kong's Hang Seng Index to four-year peaks.

Key risk-events later this week were also in focus. The Federal Reserve's monetary policy decision is due on Wednesday and the central bank is expected to cut its monthly asset purchases by another $10 billion to $25 billion. U.S. second-quarter gross domestic product and China's official purchasing manager's index (PMI) are also on tap this week.

Read MoreWhy the Fed could raise rates sooner than you think

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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China shares higher

China's benchmark Shanghai Composite rose 0.2 percent to new seven-month highs, chalking up eight straight sessions of gains. Meanwhile, the yuan hit a new four-month high against the dollar.

Insurers were mixed following news that regulators are considering new tightening measures in a bid to reduce default risks. New China Life Insurance shed over 2 percent while China Life Insurance rose nearly 1 percent.

Bank of Communications spiked nearly 3 percent, extending gains from Monday's 10 percent surge, on reports that it is planning to sell stakes to private investors. If the plan is successful, it will be the first state-controlled bank to pilot a hybrid ownership structure.

Hong Kong's Hang Seng Index added 0.6 percent, hitting new four-year highs and rising for a fifth straight day.

Read MoreWhy China can extend its 'dash for trash' rally

Nikkei up 0.6%

Japan's benchmark Nikkei index scaled a new six-month peak for a second straight day despite some mixed economic data released before the market open.

Retailers rose with Daiei and Fast Retailing leading gains by 1.3 and 3 percent, respectively, after household spending for June beat forecasts. Retail sales, meanwhile, fell 0.6 percent in the month on an annual basis, below estimates.

Nissan Motor rallied 1.8 percent after reporting a 37 percent annual profit increase for the April-June quarter on Monday.

Kospi up 0.6%

South Korean shares finished at their highest levels since 2011, rising for a third day, as investors shrugged off data that showed the country's current account surplus narrowing in June.

Automakers Kia Motors and Hyundai Motor jumped 6 and 4.6 percent, respectively.

Samsung Electronics added 2 percent despite announcing that it is postponing the launch of its new Tizen phone. Analysts say the delay is a blow to Samsung as it upsets the company's hopes to break its reliance on Google's Android platform.

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ASX gains 0.2%

Australia's benchmark S&P ASX 200 finished at a new six-year closing high, erasing losses in the final hour of trade following two days of losses.

National Australia Bank rallied over 1 percent following news on Monday that it offloaded a $1.2 billion portfolio of distressed British loans.

QBE Insurance slumped over 11 percent after announcing that its insurance profit margin for the first half was likely to be around 7 to 8 percent, compared with expectations of 10 percent.

Indian financial markets were closed on Tuesday for a public holiday.