HONG KONG (Reuters) - Asian shares rallied and oil held on to gains on Friday as this week's sharp losses were seen as excessive even as signals continued to flash 'danger' for the global economy ahead of a G20 meeting this weekend.
Some regional bonds fell but, in a sign of the caution gripping markets, the yen recovered from Thursday's sharp fall to edge up against the dollar and the euro as investors tiptoed back to the perceived safety of the Japanese currency.
"In the overall market tone, the anxiety of the financial market turmoil has not disappeared. So market demand for the dollar and the yen driven by flight-to-safety will likely remain," said Yousuke Hosokawa, senior manager at Chuo Mitsui Trust and Banking in Japan.
"The market just can't brush away its worries about issues such as how large the losses by U.S. financial corporations will be and whether the $700 billion U.S. bailout plan will suffice."
The MSCI index of Asian stocks outside Japan .MIAPJ0000PUS was up 3 percent at 0304 GMT, marking its first gain in four sessions.
The gains came despite bleak signals on the global economy, which provide a bad omen for export-dependent Asia. Leaders of the G20 industrialized and emerging nations will gather in Washington late on Friday to discuss the economic crisis.
Data on Thursday showed U.S. workers drawing jobless benefits hit a 25-year high this month, while imports to the world's biggest economy suffered a record fall in September.
Elsewhere, Germany fell into recession in the third quarter, data on Thursday showed, while the Organization for Economic Cooperation and Development slashed its economic output forecasts for major economies and said the 30-nation OECD appeared to have entered a recession.
Still, with share prices falling in the past three sessions, investors looked for beaten-up stocks. The MSCI Asia ex-Japan index fell 11.4 percent over the prior three sessions.
Japan's Nikkei average .N225 led gains in the region with a 4.3 percent advance. Hong Kong's key index .HSI rallied 3.5 percent, markets in Australia and Singapore .FTSTI gained around 2 percent each, with South Korea .KS, Taiwan .TWII and Shanghai .SSEC notching gains of over 1 percent.
CAUTION REMAINS
Oil prices held on to gains after jumping nearly 4 percent on Thursday as OPEC seemed poised to cut production later this month, and a rebound in U.S. stocks bolstered risk appetite.
U.S. crude was up 47 cents at $58.71 a barrel.
Some metals also gained, with platinum up $16.5 to $838 an ounce, but gold fell about $6 to $728.80, giving up some of Thursday's sharp gains.
Analysts cautioned against expecting a sustained rally in global markets, after a volatile week that has included uncertainty about a U.S. Treasury plan to forgo buying bad mortgage-related investments to buy stakes in U.S. lenders.
