Asian shares bounced back from a three-month low on Friday thanks to a late-day rally on Wall Street as optimism about the global economic recovery was overshadowed by rising tensions between the West and China.
MSCI's ex-Japan Asia index rose 0.37% after hitting a near three-month low on Thursday, while the Shanghai Composite Index gained 0.78%, snapping a three-day losing streak.
"Recent falls in Chinese shares have been worrying but there's no change in the fact the Chinese economy is recovering," said Yasutada Suzuki, head of emerging market investment at Sumitomo Mitsui Bank.
On Thursday, Chinese shares fell near to a three-month low hit earlier in the month. The European Union joined Washington's allies this week in imposing sanctions on officials in China's Xinjiang region over allegations of human rights abuses, prompting retaliatory sanctions from Beijing.
"All the sanctions so far have been largely symbolic and should have little economic impact. But the Sino-US confrontation is affecting market sentiment. It could take some time for them to come to any compromise," Suzuki added.
Japan's Nikkei rose 0.89% after Wall Street shares staged a rally, driven by cheap, cyclical stocks that have been battered by the pandemic.
The Dow Jones Industrial Average rose 0.62% and the S&P 500 gained 0.52% while the Nasdaq Composite added just 0.12%.
Analysts said trading was being driven more by an end-of-quarter rebalancing of investment portfolios by institutional investors rather than news flow, though they noted overnight headlines were mostly supportive for stocks.
US Labor Department data showed claims for unemployment benefits dropped to a one-year low last week, a sign that the US economy is on the verge of stronger growth as the public health situation improves.
In his first formal news conference, US President Joe Biden said that he would double his administration's vaccination rollout plan after reaching the previous goal of 100 million shots 42 days ahead of schedule.
But while improvement in the US health crisis has underpinned risk appetite globally, investors are increasingly alarmed by a divergence in health conditions.
"Vaccination in continental Europe is falling behind the schedule. Relative to the US, economic reopenings will likely be delayed as some countries are forced to impose lockdowns," said Soichiro Matsumoto, chief investment officer, Japan, at Credit Suisse's private banking unit in Tokyo.
That put pressure on the euro, which licked its wounds at $1.1780 after falling as low as $1.1762 overnight, its lowest levels since November.
The dollar also rose to 109.17 yen, within a striking distance from last week's nine-month high of 109.365 yen.
The index of the US currency stood near its highest level since mid-November, having gained 2.0% so far this month.
"The dollar is absolutely critical," said James Athey, investment director at Aberdeen Standard Investments in London.
"If the dollar starts rallying, that becomes a problem. It means commodity weakness and emerging market weakness and it starts to provide a disinflationary countervailing narrative."
Oil prices rebounded a tad from a 4% drop on Thursday, though they are on course for their third straight week of losses on worries about a further reduction in demand.
In addition to Europe, major developing economies such as Brazil and India are also struggling with a resurgence in Covid-19 cases.
The market still drew some support from concerns about supply disruption as a stranded container ship in the Suez Canal may block the vital shipping lane for weeks.
US crude was last up 0.99% at $59.14 per barrel and Brent was at $62.44, up 0.79%.