Asia Shares Stage Relief Rally on Cyprus Deal

Risk assets across Asia rallied on Monday after Cyprus secured a last-minute deal with international lenders for a 10 billion euro ($13 billion) bailout, narrowly avoiding a collapse in the Cypriot banking system.

Under the proposal, the island's second largest bank - Laiki Bank - will be split into a good and bad bank, in what's being called a bail-in. Deposits under 100,000 euros will be transferred to the larger Bank of Cyprus as amounts under that threshold will not be subject to a levy. Those above that will be used to resolve the country's debt.

The Nikkei outperformed to rally 1.7 percent while Seoul's Kospi, Australia's benchmark S&P ASX 200 and Shanghai shares closed off multi-week highs.

Meanwhile, the euro climbed 0.4 percent to push above the 1.30 handle against the greenback while the yen weakened to 94.6 per dollar.

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"It does look like an acceptable deal but we can't put the political issues aside given the demonstrations we've seen in Cyprus," Gary Dugan, CIO Asia & Middle East at Coutts told CNBC Asia's "Squawk Box."

Experts tell CNBC that regardless of a deal, investors should not be basing decisions on the tiny Mediterranean island.

"We're talking about GDP less than half of the state of Idaho... It's not a huge economy, and I think its important for investors to keep that in context when you're making big picture investments with your money," said Joe Mayger of financial services company Motley Fool.

Japan's Nikkei recouped most of Friday's losses with retailers leading gains. Takashimaya soared 7.5 percent, Marui Group surged 5.8 percent and JFR added 5.2 percent. The rally comes as Japan and the European Union are set to discuss a free-trade deal this week.

In Sydney, shares pared gains after hitting an earlier one-week high of 5,023 points. This marks the fourth straight session that the index has been unable to close above the 5,000-mark.

Construction giant Leighton Holdings rebounded 4.3 percent after appointing board member Bob Humpris as its new chairman. Shares dived 7 percent on Friday on news of the resignation of former chairman Stephen Jones.

Westfield shares rallied 1.6 percent after the mall operator announced a joint-venture with O'Connor Capital Partners on Florida mall assets worth $1.3 billion.

Blue chips helped Seoul's Kospi rebound over 1 percent from Friday's five-week low. Market heavyweight Samsung Electronics jumped 2.7 percent while LG Electronics added 2.2 percent.

The benchmark closed just 5 points shy of a one-week high at 1,981 points, hit earlier in the session.

Greater China Earnings

In Greater China, investors chose to focus on corporate earnings for trading cues rather than Cyprus's bailout deal.

China Construction Bank jumped over 2 percent in Hong Kong after posting a 14 percent rise in 2012 net profit. The news sparked a sector-wide rally with Bank of Communications up 2 percent.

Mike Werner, senior equity analyst at Sanford C. Bernstein told CNBC why he believes the banking sector is worth buying into. "Trading at 1.1 times next year's book value as a group is very attractive....My top three picks are China Construction Bank, Bank of China and then ICBC," he said on "The Call."

Meanwhile, the Shanghai Composite snapped a four-day winning streak on weakness amid brokerages.

CITIC Securities lost 2.4 percent while Haitong Securities fell 1 percent.

The benchmark hit a two-week high at 2,344 points earlier in the session but closed down 18 points lower. On Friday, the index outperformed Asian peers to post a 2 percent weekly gain.