Upbeat China factory surveys buoy Asia stocks but can't trump U.S. election jitters

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, after earlier hitting its lowest level since Sept. 19. October marked the first monthly loss for the index since May.

Stronger-than-expected factory growth in China helped Asian stocks erase early losses on Tuesday, but investors remained cautious as the acrimonious U.S. presidential election campaign entered its final week.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, after earlier hitting its lowest level since Sept. 19. October marked the first monthly loss for the index since May.

Activity in China's manufacturing sector expanded at a faster pace than expected in October, an official survey showed on Tuesday, adding to views the world's second-largest economy is stabilising thanks to a construction boom.

"While the headline numbers were eye catching, especially the rebound in the small and medium enterprises, markets remain unconvinced about the sustainability of the rebound especially given the credit system fueling this growth looks worrisome," said Cliff Tan, East Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ.

Hong Kong stocks rose 0.7 percent while Shanghai stocks also crept in the black. Property names led the charge though further gains may be checked by concerns of more curbs on home purchases to cool soaring prices.

But worries over the U.S. election largely overshadowed the upbeat China data and other events this week.

Later in the day, the Bank of Japan and Reserve Bank of Australia will issue policy decisions, followed by the U.S. Federal Reserve on Wednesday. All three are expected to keep policy steady.

Investor trepidation ahead of the Nov. 8 election was captured in the so-called "fear index", a broad gauge measuring volatility, which was at its highest levels in a month.

Opinion polls now show Democrat Hillary Clinton's lead over Republican Donald Trump has narrowed slightly since early last week, though it is not yet known if a fresh email controversy will hurt her support.

Clinton continues to hold a large advantage in the Electoral College, the process that selects a president by awarding votes through individual state elections.

Markets view Clinton as a candidate who will largely maintain the status quo, while there is greater uncertainty over what a Trump victory might mean for U.S. foreign policy, international trade deals and the domestic economy.

Shane Oliver, head of investment strategy at AMP Capital, reckons a Trump victory would be negative for Australian and Asian shares due to concerns over his policies on trade, while safe-haven assets like bonds and the dollar may benefit.

In the very short term, stocks in Asia were broadly trading water ahead of two major central bank meetings later in the day.

Australian shares fell 0.6 percent ahead of a central bank decision due at 0330 GMT where analysts widely expect rates to stay at a record low of 1.5 percent.

The Bank of Japan is also expected to maintain monetary settings and its projection of a moderate economic recovery on Tuesday, even as weak consumption and exports force it to concede that inflation will remain far from its target for years to come.

Broad-based weakness in equities bolstered bond prices with U.S. Treasury bond yields falling across the board with two to 30-year yields slipping between two to four basis points. In early Asian trade, Japanese and Australian bond yields also pushed lower.

Foreign exchange markets were a more quieter place with major currencies hemmed in narrow trading ranges.

The dollar index, which tracks the greenback against a basket of six global peers, was flat at around 98.41 after a solid run since September.

U.S. crude stabilised around $46.9 per barrel after falling nearly 4 percent while global benchmark Brent was flat around $48.85 a barrel after falling nearly 1.5 percent in overnight trades.

The Organization of the Petroleum Exporting Countries (OPEC) approved a document on Monday outlining its long-term strategy, a sign its members are achieving consensus on managingproduction.

But OPEC representatives have achieved little otherwise, failing to reach any specific terms, and sources said Iran has been reluctant to even freeze output.