By Kane Wu
HONG KONG Asian stocks shook off earlier losses on Tuesday, helped by assurances that Beijing would support flagging growth in the world's second-largest economy, which helped investors shift their focus away from risks around interest rates and Russia.
The Chinese yuan also perked up significantly as central bank guidance sent a clear warning to traders that authorities were becoming less tolerant of the currency's recent weakness.
The shift in mood helped MSCI's gauge of Asia Pacific stocks outside Japan widen gains to 0.66%, with Hang Seng Index and China's benchmark CSI300 Index up 1.56% and 0.54%, respectively, by midday.
Europe and Wall Street were set to open higher with FTSE futures up 0.3% at 0422 GMT and E-mini futures for the S&P 500 index climbing 0.21%.
In China, Premier Li Qiang said economic growth in the second quarter would be higher than the first and that Beijing would roll out more effective policies to expand domestic demand and open markets.
"Good news is the rebound on the renminbi. It's stabilising, and also the sentiment in the A-share market is improving," said Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong.
"I think people still expect there will be more policy coming out in July - more specific policies, how they will stabilise the economy and boost it in the third quarter," Leung said.
Li's assurances come a day after S&P Global cut its forecast for China's economic growth to 5.2% in 2023, down from an earlier estimate of 5.5%.
It was the first time a global credit ratings agency has cut China's forecast this year and follows lowered predictions by major investment banks including Goldman Sachs.
The People's Bank of China set the midpoint rate for the yuan at 7.2098 per U.S. dollar prior to market open, weaker than the previous fix 7.2056, but nearly 100 pips stronger than Reuters' consensus estimates.
State banks were also seen selling dollars on Monday, traders said, just ahead of the onshore domestic close to shore up the yuan's closing price.
All of that helped the spot yuan trade firmer, alleviating more pressing concerns about the risks of capital flight from the mainland after weeks of sharp declines.
"Further gradual (yuan) weakness, I think is one of the policy levers the PBOC will be quite content to see providing some support to the economy, if it can be done in that constrained and orderly fashion where there's not a big outflow of capital," said Rob Carnell, ING's regional head of research, Asia-Pacific.
In Hong Kong, NWS Holdings saw its shares rise 10% on Tuesday to hit a two-year high after it said a unit of conglomerate Chow Tai Fook had offered to buy about 97% of the construction firm's stock for $4.53 billion.
Geopolitical turmoil has in recent days dampened risk appetite following an aborted mutiny in Russia on the weekend, which appeared to reveal cracks in President Vladimir Putin's grip on power.
All three major U.S. stock indexes ended in the red on Monday, with megacap momentum stocks pulling the tech-heavy Nasdaq down the most.
"Although the situation has subsided, any subsequent insurrection against Russia remains a potential cause for concern, potentially triggering a defensive reaction in safe-haven assets," said Anderson Alves, a global macro analyst at ActivTrades.
In energy markets, U.S. crude went up 0.52% to $69.73 a barrel at 0421GMT while Brent gained 0.51% to $74.56 a barrel.
Spot gold added 0.3% to $1,928.5 an ounce.
In currency markets, the dollar index was down 0.136%.
Ten-year U.S. Treasury yields were steady in early Asia trade at 3.7154%. Two year yields fell 7 basis points to 4.671%.
(Reporting by Kane Wu; Additional reporting by Ankur Banerjee and Tom Westbrook in Singapore; Editing by Sam Holmes)