By Louise Heavens
SINGAPORE (Reuters) - Stocks recovered earlier losses on Monday, with Japan rebounding as the yen fell against the dollar and boosted exporters, and Sydney rising 1 percent on optimism over a potential bank takeover.
But European markets were on course for a lackluster open, with financial bookmakers calling Britain's FTSE 100 down slightly, and France's CAC and Germany's DAX up marginally.
Tokyo's recovery sent Japanese government bonds lower, but Treasuries edged higher after news on Friday that American International Group, the world's biggest insurer, posted its largest ever quarterly loss. The news revived fears about financial institutions' exposure to the credit crisis.
The dollar rose against other regional currencies as weak Australian and New Zealand economic data signaled the fallout from the credit crisis was continuing to spread globally.
A slight retreat in the price of crude from record peaks above $126 a barrel also helped sentiment.
Tokyo ended 0.6 percent higher as exporters such as Canon Inc recovered as the yen retreated, easing a potential squeeze on profits. The Nikkei 225 had lost nearly 1 percent in early trade.
Shares across the rest of Asia were up 0.2 by 1:59 a.m. EDT (0559 GMT). The benchmark is down just more than 8 percent so far this year, but had rallied sharply in March after it had fallen to its worst level since August 2007 with the collapse of U.S. investment bank Bear Stearns.
Singapore's main index was up 0.3 percent and Taiwan's index ended 0.4 percent better.
Australia's benchmark rose 1 percent, lifted by news that Westpac Banking Corp Ltd was in talks on an all-share bid for St George Bank Ltd, which has a market value of A$15 billion ($14 billion).
Markets in Seoul and Hong Kong were closed for a public holiday.
DOLLAR FLOOR
The dollar gained against major currencies after its fall late last week after a survey showed business confidence in Australia hitting the lowest since September 2001 and housing finance falling sharply, while a report in New Zealand showed housing price gains slowing for an eighth straight month.
The New Zealand dollar slid to a four-month low against the U.S. dollar after the data, which is expected to bolster the case for interest rate cuts, but the Aussie remains not far away from a 24-year peak struck against the greenback last month.
"It may be the beginning of a downtrend for the Aussie but I'm not convinced the Aussie will collapse from here," said Masafumi Yamamoto, head of FX strategy for Japan at Royal Bank of Scotland.
Currency investors are waiting for more clues on the policy outlooks for the U.S. Federal Reserve and European Central Bank, while eyeing the relentless rise in oil prices.
The dollar fetched 103.52 yen while the Aussie dollar fell to $0.9374 and the New Zealand dollar dropped to $0.7642.
Crude oil dipped to $125.26 a barrel, but was still within sight of a record high of $126.27 hit on Friday.
Middle East violence is the latest factor to raise concerns about potential supply disruptions from the world's largest crude producing region.
Spot gold changed hands at $881.70/882.20 an ounce, slightly down from late levels in New York on Friday.
Japan's June 10-year futures slipped 0.35 of a point to 136.25. The benchmark 10-year yield rose 3.5 basis points to 1.590 percent.
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