Shanghai and Japan stocks close at multi-year highs

Asian equities rose on Tuesday, with Shanghai and Japanese stocks closing at multi-year highs on hopes of Chinese stimulus and as investors dismissed Japan's rating downgrade.

Reuters reported late in the session that the People's Bank of China may unveil a cut in the reserve requirements for banks on the back of recent weak data. Official factory activity data earlier this week fell to an eight-month low, prompting talk of further aggressive intervention from authorities.

Meanwhile, traders seemed to dismiss Moody's downgrade of Japan's credit rating late on Monday, which pushed the yen off seven-year lows against the dollar.

Read MoreWhy investors are brushing off Moody's Japan downgrade

"It remains be seen if Moody's critiques have any merit. The ratings agencies have been notoriously wrong in their economic assessments of G-3. There are several reasons to be more optimistic about Japan's near-term prospects including the sharp fall in energy price and the rise in the exchange rate," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said in a note.

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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Shanghai up 3.1%

Mainland shares closed at a fresh three-year peak, resuming their gains after snapping a seven-session winning streak on Monday.

Financial stocks were the best performers on the benchmark Shanghai Composite; Founder Securities and China Merchants Bank shot up 10 percent each. Minsheng Banking was also 10 percent higher after announcing Anbang Insurance bought 5 percent of its shares.

Read MoreChina rate cut is cold comfort for developers

Hong Kong shares recovered over 1 percent after closing at a one-and-a-half-week low on Monday.

Nikkei 0.4% higher

Japanese stocks ended at a new seven-year high for the second straight day, reversing earlier losses as the yen weakened to 118.51 per dollar.

Exporter stocks contributed to most of the benchmark's gains; Olympus popped 2 percent while airbag maker Takata jumped 3 percent.

Fast Retailing, operator of Uniqlo stores, fell 0.4 percent ahead of releasing sales figures later in the day.

ASX 1.4% higher

Australia's benchmark S&P ASX 200 recovered after dropping to its weakest level since October 14 on Monday. The Australian dollar rose back above 85 U.S. cents following Monday's four-year low after the Reserve Bank of Australia kept interest rates unchanged at its policy review, as widely expected.

Oil stocks that suffered in recent sessions rallied sharply; Beach Energy and Woodside Petroleum climbed 3 percent each while Oil Search surged over 5 percent.

Read MoreOil drillers seek to temporarily idle more rigs

Data showing the country's third-quarter current account deficit came in smaller-than-expected at A$12.5 billion also boosted sentiment.

Kospi flat

South Korean shares erased losses in the final hour of trade. Earlier in the session, shares hit a one-and-a-half week low after data showed November inflation slowing to a nine-month low.

Automakers capped larger gains on the benchmark Kospi, with Hyundai Motor sinking 3 percent

Nifty down 0.4%

Indian shares widened their losses after the Reserve Bank of India left interest rates on hold, as expected.