SINGAPORE - Asian stocks crept to two-week highs in cautious trade Tuesday, helped by hints of progress toward avoiding a U.S. default and by resilience in Japan's economy, with industrial sector surveys in Europe and the United States in focus later in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan touched its highest since May 9, and was up about 0.3% by mid-morning. Japan's Nikkei extended its winning streak into a ninth session and rose 0.6%.
S&P 500 futures advanced 0.2% and European futures rose 0.16%.
President Joe Biden and House Speaker Kevin McCarthy could not reach an agreement Monday on how to raise the U.S. government's $31.4 trillion debt ceiling with just 10 days before a possible default, but vowed to keep talking.
"The resumption of debt ceiling negotiations spurred some hopes despite distinct risks of brinkmanship and blame-shifting remaining on the cards," said Mizuho economist Vishnu Varathan.
"Without real action on that front, hawkish Fed speak has (had) some sway on markets," he said, noting some pressure on U.S. Treasuries that has also leant support to the dollar.
Ten-year and two-year U.S. yields are near highs not seen since March, as traders start pushing back expectations for U.S. rate cuts from July towards November or December.
Minneapolis Federal Reserve President Neel Kashkari said overnight that it was a "close call" as to whether he'd vote to hike again or pause at next month's meeting.
St. Louis Fed President James Bullard said another 50 basis points of hikes might be required.
Benchmark 10-year Treasury yields rose for a seventh straight session on the remarks to hit 3.728% overnight, and held steady near that level in Asia.
Two-year yields were last at 4.328%.
The U.S. dollar tracked the move and hit a six-month high of 138.88 yen in the Asia session. The dollar was firm against most other currencies, and traded at $1.0805 per euro and $0.6650 per Australian dollar.
Japan's manufacturing activity expanded for the first time in seven months in May, survey data on Tuesday showed, while the service-sector hit record growth, as the post-COVID recovery gains traction.
Purchasing Managers Index surveys are due in Europe, Britain and the United States later in the day and strong services growth is expected to hold the composite readings in expansionary territory.
Commodities were broadly steady, though U.S. natural gas fell sharply overnight. Benchmark Brent crude futures rose 0.4% to $76.26 a barrel. Spot gold fell 0.4% to $1,960 an ounce. Overnight the S&P 500 was flat.
(Reporting by Tom Westbrook Editing by Shri Navaratnam)