Nikkei Leads Asia Higher; China Data in Focus

Asian stocks rebounded on Tuesday from the previous day's sharp losses as a positive lead from Wall Street offset pessimism over unexpectedly high Chinese inflation data.

The Nikkei led gains by 2.6 percent, Australia's S&P ASX 200 hit a one-month high and South Korea's Kospi was steady at the 1,830 mark. The Shanghai Composite closed up 0.4 percent following a choppy morning session.

(Read More: Asia 'Shivers' as Fed Prepares to Taper, China Slows)

ASX 200
CNBC 100

China Data in Focus

A firm start to the U.S second-qaurter earnings season boosted sentiment in Asia after Dow component Alcoa delivered a beat on both earnings and revenue.

Investors largely shrugged off China's latest annual consumer inflation data, which shut out any chances of monetary support from the People's Bank of China (PBOC). Consumer prices rose to 2.7 percent in June from a year ago, more than a Reuters forecast for a 2.5 percent gain. Meanwhile, overcapacity issues led producer prices to fall for a 16th straight month.

"CPI data is not a market mover. Short-term focus is still on shadow banking. Investors are wondering if China's banking system can sustain a decline in GDP [gross domestic product] growth," said Stephen Sheung, head of investment strategy at SHK Private.

Shanghai Up 0.4%

China's benchmark index staged a modest rebound after dropping to a one-week low in the previous session as investors went bargain hunting. Financials rebounded with China Merchants Bank up over 1 percent.

(Read More: What China's Battered Stock Market Is Telling Us)

Food producers were higher after rising food prices led to the better-than-expected June inflation figures. Cereal maker Zheijang Beingmate climbed over 5 percent while Guangxi Royal Dairy rose 1 percent.

"Food prices are going to be discussed as a wild card variable. It's not a worry yet but we're going to continue to see all kinds of mechanisms put in place for China to import food because there is a looming food shortage," said Thomas Murphy, managing partner at Family Office Research & Management.

Sydney Increases 1.5%

A rally in banks led Australia's benchmark index to hit a one-month high at 4,894 points. Macquarie Group increased nearly 5 percent while Westpac rose 2 percent after a dismal survey of business conditions strengthened the chances of a rate cut from the Reserve Bank of Australia.

Shares of aluminum producer Alumina rallied 3 percent after Alcoa's better-than-expected earnings.

Meanwhile, the Australian dollar rose above the $.091 handle against the greenback, retreating further from this month's three-year low of $0.9094.

(Read More: Could This Be the Week Aussie Breaks Below $0.90?)

Nikkei Rallies 2.6%

Japan's benchmark index recouped all of the previous day's 1.4 percent decline as dollar-yen breached the 101-yen handle. The Nikkei closed just 21 points shy of a new six-week high.

Real estate stocks rallied on the weaker yen. Mitsui Fudosan rose 3.7 percent while Sumitomo Realty added 4.7 percent. Olympus dropped 5.4 percent after the camera maker announced plans to raise up to $1.7 billion via an issuance of new shares for its medical business.

(Watch Now: Your Japan Trade: Short China-Exposed Firms)

The Bank of Japan's (BOJ) policy meeting kicks off Wednesday and while no change is expected in the central bank's monetary stance, the Nikkei business daily reported that the BOJ may deliver a more upbeat economic assessment.

Kospi Adds 0.7%

South Korea's benchmark index tracked Asia-wide gains, lifted by a 1 percent rally in market heavyweight Samsung Electronics. The stock fell over 3 percent to a 10-month closing low in the previous session.

Shares of Asiana Airlines rebounded 1 percent after losing 5 percent in the previous session. Investors sold off the stock after one of its Boeing 777 planes crashed in San Fransisco over the weekend, raising key safety concerns.

The Kospi index has traded in a narrow range of 1,860 and 1,809 points in the past week.

By's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC