Asian shares recovered from their lowest in about six months on Tuesday as weak new U.S. manufacturing data eased worries about the Federal Reserve's stimulus programme, although investors were cautious before a more important jobs report later in the week.
U.S. stocks rose but the dollar fell and U.S. Treasury prices were mixed on Monday in a volatile session after data from the Institute for Supply Management showed an unexpected contraction in the U.S. manufacturing sector in May, shrinking for the first time in six months.
The ISM report followed similarly sluggish manufacturing data from China and Europe, suggesting an ailing world economy that still needs central bank support.
Japan's Nikkei stock average opened down 0.6 per cent after tumbling 3.7 percent to a six-week low on Monday. The Nikkei, which had charged up to a 5-1/2-year peak less than two weeks ago for a gain of more than 50 percent since the end of 2012, has lost 17 percent since then.
Against this backdrop, Prime Minister Shinzo Abe is set to unveil a third tranche of his "Abenomics" growth strategy, which may include a change in the government's guidance on Japan's public pension funds to encourage more investment in equities and overseas assets.
Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, said the third leg of Abe's growth strategy was likely to encourage trading: "Changes in pension investment have been talked about for some time in relation to Abenomics, but to have an official announcement is different as that would prompt active fund managers to start buying even if an actual implementation of changes by pension funds may not be imminent."
Saito said the dollar's recent fall against the yen took some hot air out of the rapidly building bullish bets on the dollar, and warned that markets were poised to resume yen selling with stops seen lined up between 99.70-100.50 yen and traders eyeing Abe's announcement due on Wednesday.
Markets will likely remain jittery as investors assess the implications of the soft U.S. data that followed a series of positive reports which sparked speculation the Fed would start scaling back its aggressive bond-buying stimulus scheme.
Uncertainty stirred by the ISM added to the cautionary tone ahead of Friday's monthly nonfarm payrolls report, given that the Fed has specifically targetted employment levels in its stimulus policy.
"I don't think this single indicator, which is also highly volatile, changes the general market view of a Fed tapering later this year, but markets will nevertheless want to wait until Friday for more conviction," Saito said.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.3 percent, after dropping to its lowest in nearly six months and falling for a fourth straight day on Monday.
Australian shares were up 0.1 percent while South Korean shares opened 0.4 percent higher.
The dollar was up 0.3 percent to 99.78 yen, recovering from a three-week low of 98.86 set on Monday after the weak ISM. The dollar index, measured against a basket of six key currencies, was steady around 82.717, after off Monday's three-week low of 82.428.