Japanese stocks lead Asia higher ahead of Fed meeting

Asian stocks rebounded on Tuesday after China's central bank injected funds into money markets and as the Japanese yen weakened ahead of key global central bank meetings this week.

The Nikkei rallied 1.5 percent, South Korea's Kospi added 0.9 percent, the Shanghai Composite traded within sight of the 2,000 mark and Australia's S&P ASX 200 ended flat.

(Read more: Fed expectations:Will they stay or will they slow?)

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Key risk events

Overall market attention will be on the Federal Reserve's two-day meeting, which starts on Tuesday and may give an indication of when the central bank's massive asset purchase program will be tailed back. The Bank of England and the European Central Bank will also meet on Thursday.

A weak lead from Wall Street further weighed on sentiment in Asia. U.S. stocks kicked off the week on a weak note on caution ahead of the Fed meeting and a slew of key economic reports.

(Read more: The big macro-palooza: US jobs, growth and the Fed)

Nikkei above 13,800

Japan's benchmark index broke it's four-day losing streak as investors took comfort from a weakening currency. Dollar-yen rose above the 98 level in early trade, which led the export-heavy Nikkei index to rebound from Monday's four-week low.

Shippers Mitsui OSK Lines rose over 4 percent each and Nippon Yusen jumped 3 percent on strong earnings expectations for the April-June quarter due to a weaker yen and demand for bulk shipping. Kawasaki Kisen meanwhile, rallied over 6 percent.

(Read more: Here's another reason to avoid Japanese stocks)

Positive sentiment from a weaker yen out-shadowed weak economic data. Industrial output for the month of June skidded over 3 percent from the previous month, more than double forecasts for a 1.8 percent fall while household spending fell 2 percent from a month earlier.

"It's very hard for the market to be able to look through something this weak and given what's going on with dollar-yen, the Nikkei is going to remain vulnerable. But after the volatility, I think we could get some buying opportunities in the Japanese market" said Laura Fitzsimmons, vice president of futures & options at JPMorgan Investment Bank.

(Read more: Is Japan headed for another recession?)

Shanghai near 2,000

China's benchmark stock index moved off Monday's one-week low thanks to a rally in financial stocks after the People's Bank of China injected funds into the market for the first time since February.

Mid-sized lender China Merchants Bank led gains by 2 percent while China Minsheng Banking and Pudong Development Bank rallied over 1 percent after tumbling as much as 3 percent on Monday.

(Read more: China acts to ease credit crunch - why the change of heart?)

Investors remained cautious ahead of July's official purchasing managers index (PMI) of manufacturing activity on Thursday, the same day that HSBC is expected to release the final reading of its China PMI.

Sydney flat

Australian stocks bounced between gains and losses in lackluster trade after the Australian dollar tanked 1.5 percent following dovish remarks from Reserve Bank of Australia (RBA) governor Glenn Stevens. Stevens said that the central bank still has room to cut rates and said that he would not be surprised if the currency declined further.

(Read more: Aussie tumbles on RBA comments)

Retailer Woolworths skidded 1.6 percent despite reporting a 12 percent rise in fourth-quarter sales figures. The data comes one week after the firm upgraded its full-year profit expectations.

Toll road developer Transurban fell 3.4 percent after investment bank UBS sold it's 4.8 percent stake in the Australian firm to a range of domestic institutions.

Kospi 0.9% higher

Sentiment in South Korea's benchmark index was supported after industrial output rebounded 0.4 percent in June from the previous month.

"While the overall manufacturing sector seems to be sluggish, smartphones and electronics have buffered. More importantly, domestic consumption shows signs of recovery, indicating that the growth boosting measures and the earlier BOK [Bank of Korea] rate cut have improved consumer sentiment," wrote analysts at Australia New Zealand Banking in a research note.

The positive data boosted automakers. Hyundai Motor and Kia Motors rose 3 percent each while Hyundai Mobis added 4.5 percent.

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