Asia Enjoys Relief Rally Ahead of Cyprus Vote

Asian markets licked their wounds on Tuesday after the previous day's sell-off on hopes that Cyprus's upcoming vote on the bank deposit levy will pass through parliament and secure the island's financial rescue.

The Nikkei 225 closed up 2 percent to out perform the region, Seoul's Kospi rose modestly above a one-month low and the Hang Seng Index crossed the 22,000-mark to rebound from Monday's three-month low. Meanwhile, Shanghai shares recouped losses after touching an all-time low for 2013 but the Australian market closed at a near one-month low.

Richard Martin, managing director at IMA Asia told CNBC's "Capital Connection" that developments in Cyprus will increase capital flows into Asia as the region is one of the few strong growth plays for investors. "The sum total may be that this (Cyprus) does push more money in Asia's direction," he said.

Cyprus's shock bank levy announcement did not have as deep of an impact on global markets as initially feared. The S&P 500 index only pulled back half of a percent overnight and the uptick in Spanish and Italian yields was relatively contained, which helped pave the way for a rebound across risk assets in Asia.

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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Global equities notched up spectacular gains earlier this month, with the Dow logging all-time highs, German and French stock markets hitting a 52-week peak, and Japanese shares at a four-and-a-half-year record. Many analysts had expected a looming correction, and the Cyprus bailout deal may be the catalyst for a risk-off phase.

"In Greece, the issue was never about the nation specifically but about the precedent that Greece could set as the first country feared to exit the euro zone. That's the danger for Cyprus, it's the danger of precedent," said Ilya Spivak of online forex trading broker, FXCM on CNBC Asia's "Squawk Box."

Nikkei Crosses 12,400

Yen weakness in Asian trade supported the Nikkei's recovery. The currency was trading around the 95.4 levels, in sight of the recent three-and-a-half-year low of around 96.7 to the dollar.

Electrical equipment exporters are usually the first to react to currency movements as any swing in the yen's value affects their repatriation earnings. Taiyo Yuden soared 8 percent while Sony added 6.8 percent as the yen resumed its decline.

Bank of Japan (BOJ) chief Masaaki Shirakawa is set to end his five-year term on Tuesday as he passes over the helm to his successor Haruhiko Kuroda, who is expected to announce radical stimulus measures at the BOJ's policy meeting next month.

If uncertainties over Europe persist, investors may flock back to the safe-haven yen, which would cap broader stock market gains. A weak yen has lifted the Nikkei nearly 30 percent since the start of 2013.

Korea Inches Up

Seoul shares crept up to track an Asia-wide recovery as investors took advantage of the previous day's sell-off to bargain hunt. Tech shares provided support with market heavyweight Samsung Electronics rallying 2 percent while LG Display jumped 1.5 percent.

The Korean won moved off a previous six-month low against the U.S dollar to strengthen to 1,111. The currency touched 1,119.05 per dollar on Monday, its weakest levels since September.

Greater China Rebounds

Hong Kong shares recovered modestly from the previous day's three-month low but still closed down. Power producers stocks lent support with China Resources Power rallied 8.1 percent after posting a 68 percent rise in 2012 net profit from the previous year. The news sparked a sector-wide rally as Power Assets jumped 1.8 percent.

The Shanghai Composite briefly hit an all-time low for 2013 at 2,232 points but managed to rebound thanks to a rally across the property sector on news that Beijing may introduce new home sales curbs by the end of the month.

China Merchants Property surged 5 percent while Vanke jumped 2.4 percent.

Fears of excess liquidity continued to plague investors after reports that China's central bank would drain roughly $6.2 billion from money markets on Tuesday. The central bank has used monetary policy to stabilize liquidity in recent weeks but investors are concerned whether these draining operations signal a real shift to tighter policy.

(Read More: China Showing Symptoms of Financial Crisis: Report)

The index hit a two-week low on Monday and has been on a downwards spiral ever since peaking at 2,444 points in February, a 10-month high. Ray Barros, CEO at Ray Barros Trading Group told CNBC's "Cash Flow" that he expects more price action down. "The upward move (to the 2,444 level) took approximately two months so I'd expect the downward move would take about the same," he said on

A last minute pull back in Sydney shares led the S&P ASX 200 to end below the 5,000-mark, its lowest closing levels in nearly a month.

Gold miners were the benchmark's best performers after prices of the yellow metal hit its strongest levels since February. Evolution Mining led losses by 5 percent.

Shares of Australia's largest internet services provider, TPG Telecommunications, rallied 4.8 percent after posting a strong half-year profit rise of 41 percent to $78.3 million