Asia Rallies on Fed, ECB Optimism; Nikkei Slips

Asia's equity markets rose to fresh peaks on Tuesday, fueled by hopes of central bank stimulus but Japanese shares fell, weighed down by mixed economic data.

A rally in financials helped push Australia's S&P ASX 200 to a new four-and-a-half year high, shares in Seoul closed just 4 points below a one-month high and the Hang Seng Index hit a seven-week high. In contrast, Japan's Nikkei closed down 0.2 percent.

Mainland Chinese markets are shut until Thursday for the Golden Week holiday.

Expectations are high for central banks to continue supporting the global economy with monetary easing ahead of the U.S. Federal Reserve'stwo-day meeting later on Tuesday and the European Central Bank's (ECB) policy review on Thursday.

(Read More: Bernanke Watch: Is He Eyeing the Exit?)

"It is the promise of an extended period of $85 billion per month of Fed asset purchases together with the heightened expectation of fresh ECB easing measures this week that is driving sentiment and flows," wrote analysts at National Australia Bank in a report on Tuesday.

A record close on the S&P 500 and a twelve-year closing high for the Nasdaq overnight also bolstered sentiment in Asia, following a better-than-expected pending U.S home sales report.

ASX 200
CNBC 100

Sydney Hits 4.5 Year High

Australia's 'Big Four' banks extended Monday's 1 percent rally after the country's fourth-largest lender, Australia New Zealand Banking (ANZ), hiked its dividend by a more-than-expected 73 cents, an 11 percent rise from a year earlier.

ANZ shares jumped 5.7 percent, National Australia Bank and Commonwealth Bank of Australia rallied over 2.5 percent each while Westpac rose 2 percent.

"Perhaps there are some good read-throughs for the other banks who report over the next five days, and the market would have specifically found solace in the fact that costs are being well managed, and asset quality is improving with a 15 percent decline in new impaired loans," wrote Evan Lucas, market strategist at IG Markets in a note.

Hong Kong Extends Gains

Shares of struggling retailer Esprit supported the benchmark index with a 3.4 percent rally after increasing as much as 5 percent on Monday, after UBS upgraded its rating to 'buy.'

Financials were the best-performing sector with China Life Insurance increasing 1.2 percent and Ping An of China rising 2.6 percent after posting strong earnings last week.

"We reiterate our view that life sector fundamentals have troughed. Earnings should continue to rebound notably for the rest of the year, given a low base last year and a stabilizing A-share market year-to-date. We like China Life and Ping An," wrote Darwin Lam of Citi.

Nikkei Steady

Japanese financial markets resumed trade on a defensive note after Monday's public holiday due to a mixed bag of economic reports. Data revealed a surge in household spending in March, but retail sales fell surprisingly, casting doubts on the success of Prime Minister Shinzo Abe's economic policies, known as "Abenomics."

Experts say that in order to see signs of a full-blown recovery, Japan's entire economic growth package first needs to be installed.

"They (officials) have announced that the stimulus is one of three arrows. The other two arrows are fiscal sustainability, and a growth strategy. Both plans are expected in the coming months and these need to be taken together to ensure that Japan achieves inflation," said Anoop Singh, director of the Asia-Pacific region at the IMF.

(Read More: Is the BOJ Backtracking on Its Inflation Pledge?)

Electric equipment makers tumbled as the yen remained below the 98 handle per dollar, just days after the currency pair looked poised to break through the key 100-barrier. Ricoh slumped 8 percent while robotics maker Fanuc sunk 5.5 percent after forecasting a 39 percent drop in first-half profit

Kospi Crosses 1,960

Investors in Seoul were buoyed by a pause in the yen's recent decline, which led the benchmark index to touch a one-month high at 1,967 points.

Market heavyweight Samsung Electronics rallied 2.6 percent while automakers Hyundai Motor and Kia Motors extended the previous day's gains by 1 percent each.

South Korean shares have lost over 2 percent this year, hurt by the yen's tumble that puts local exporters at a disadvantage to Japanese rivals.