Asian stocks revive, dollar steady ahead of Fed

HONG KONG (Reuters) - Asian stocks rebounded on Tuesday from Monday's sell off as pummeled financials regained some luster and the dollar steadied ahead of a Federal Reserve meeting that is expected to yield steep U.S. rate cuts.

Oil recovered some poise after a big drop on Monday but metals were weak on fears of a global economic slowdown.

Gold retreated from a record high above $1,030 an ounce hit on Monday as investors unwound some safe-haven bids and booked some profits from an asset class that has risen almost 20 percent so far this year. Bonds also gave up some recent sharp gains.

"There's still a lot of uncertainty in the markets, but at the same time expectations of a Fed rate cut of 75 to 100 basis points are sparking some short-covering," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

The MSCI's measure of Asian stocks outside Japan had gained 0.6 percent as of 10:23 p.m. EDT on Monday, after plunging 4.5 percent on Monday to its lowest level since August.

Monday's markets slumped after the Fed's unexpected cut in a key lending rate and the bargain sale of U.S. investment bank Bear Stearns (BSC.N: Quote, Profile, Research) to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) sparked fears of a deepening global credit crisis.

Concern about financial market contagion and a U.S. economy that is already believed by some economists to be in recession is likely to weigh heavily on Fed policy makers later on Tuesday when they gather to decide on U.S. interest rates. nFEDAHEAD

Fed funds futures are reflecting expectations the central bank will cut its key fed funds rate by 1 percentage point from the current 3 percent, with an outside chance of a 1.25 percentage-point cut.

Fed policy will be key for Asian exporters such as South Korea's Hyundai Motor Co (005380.KS: Quote, Profile, Research) which depend on U.S. consumers to power their profits.

Sentiment will also be set by quarterly earnings from U.S. financial firms, especially Lehman Brothers (LEH.N: Quote, Profile, Research), which is due to post earnings on Tuesday. The bank's shares dropped 19 percent on Monday on speculation it was vulnerable to the credit crisis.

Asian financial companies, which have been spared the level of writedowns reported by their U.S. and European counterparts, have nonetheless suffered this year on the view they can't be immune to the liquidity crunch.

But shares in lenders such as National Australia Bank Ltd (NAB.AX: Quote, Profile, Research), up 2.12 percent, and Japan's top lender Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research), up 3.3 percent, regained some of what they had lost on Monday's sell-off.

Japan's Nikkei average .N225 rose 1.5 percent, recovering after hitting its lowest since August 2005 on Monday following a 4 percent drop.

Markets elsewhere, including South Korea , Australia , Singapore .FTSTI, Hong Kong .HSI, and Taiwan gained less than 1 percent each.

BOJ STANDOFF

The Bank of Japan is dealing with problems of its own amid a standoff that is preventing the appointment of a governor to manage monetary policy in the world's second-biggest economy.

The Japanese government nominated a former top finance ministry official, Koji Tanami, as the next governor, but he could face the same fate as the previous nominee Toshiro Muto, who was vetoed by opposition parties in the upper house of parliament.

The dollar steadied against other major currencies ahead of the Fed's meeting, trading at 97.20 yen from as low as 95.77 yen on Monday, which had been the lowest in nearly 13 years.

The euro held at $1.5737, down from a record peak of $1.5905 on Monday.

U.S. crude futures CLc1 rose 44 cents to $106.12 a barrel, gaining back some of the 4.11 percent they lost on Monday, though well off a peak $111.80 hit on Monday.

Crude oil prices had risen over 16 percent this year as of Monday, driven in part by speculators buying oil to hedge against inflation and the falling value of the U.S. dollar.

But other commodity remained weak after the Reuters Jefferies CRB Index .CRB, which tracks 19 commodities futures, fell about 5 percent on Monday, its sharpest single-day slide in almost 40 years.

Gold was quoted at $998.10 per ounce, well off from a record $1,030.80 hit on Monday.

Platinum hit a one-week low, while silver, and palladium hovered below their recent highs.

Japanese government bond futures eased as investors booked profits after debt prices had hit a five-year high on Monday.

June 10-year futures 2JGBv1 were down 0.50 point at 141.20, off a five-year high 142.00 hit on Monday.