Japanese shares rose sharply and the yen fell after a media report on Tuesday said Prime Minister Shinzo Abe is considering a cut in corporate tax to counter the pain of a planned sales tax increase, while gold eased but held near three-week highs.
European shares were expected to open firmer, with London's FTSE 100 .FTSE seen up as much as 0.2 percent before the UK inflation report and Frankfurt's DAX .GDAXI up as much as 0.2 percent ahead of German inflation and ZEW economic sentiment data, according to financial spreadbetters.
Abe is trying to spur growth and pull the world's third-largest economy out of 15 years of deflation with expansive fiscal and monetary policies, dubbed "Abenomics".
The Nikkei newspaper quoted government sources as saying Abe has called for a study on lowering the corporate tax rate as a way of easing the burden on Japanese companies and attracting foreign investment.
"The media report on Abe's move to consider lowering the corporate tax is positive for the stock market," said Mitsushige Akino, a fund manager at Ichiyoshi Asset Management.
Tokyo's Nikkei share average .N225 climbed 2.6 percent in light volume, rebounding after it fell to its lowest since end-June following Monday's slower-than-expected GDP data. Tuesday's gain took the index to just below its 13-week moving average.
The yen slipped 0.6 percent to 97.475 yen to the dollar, pulling further away from a seven-week high of 95.810 touched last week.
Driven by hopes of Abenomics, the benchmark Nikkei has risen 33 percent this year, while the yen has fallen 12 percent versus the dollar.
DOLLAR FIRMER BEFORE DATA
Against a basket of major currencies, the dollar .DXY was up 0.2 percent, extending gains into a third day in anticipation that U.S. data will point to the Federal Reserve rolling back its $85 billion monthly stimulus program sooner rather than later. The next test of this view will be Tuesday's retail sales data, which most expect to be strong.
"Better economic data from China last week has left Asia ex-Japan with a positive tone. Now it will be the turn of the U.S. to show what it can do with some retail therapy," Societe Generale wrote in a note.
Asian shares as measured by MSCI Asia-Pacific ex-Japan index .MIAPJ0000PUS rose 1.0 percent to a two-week high, extending Monday's gain on the back of last week's upbeat Chinese factory output data, while South Korean shares .KS11 advanced 1.5 percent.
Tuesday's gains took the MSCI Asian gauge to near its 50 percent retracement of its slide from a 22-month high on May 9 to a 11-month trough on June 25.
In the commodities markets, gold eased 0.1 percent after surging as much as 2.2 percent to a three-week high on Monday. The precious metal is down 20 percent this year.
"The sentiment in gold has definitely improved recently," said Danny Laidler, head of ETF Securities' Australia and New Zealand business.
"The massive redemptions we saw in April have reduced every month. Hopefully the large outflows have stopped."
Copper prices was steady at around $7,250 a ton, after slipping 0.3 percent on Monday.
Brent Crude prices edged up 0.1 percent to just above $109 a barrel, extending the previous session's 0.7 percent rise to a one-week high on concerns over supply disruption from Libya.