Japanese government bonds were back in favour, having been left in the cold on Monday after news Microsoft Corp's US$45 billion (S$63.6 billion) bid for Yahoo and China's purchase of a stake in takeover target Rio Tinto boosted investor optimism over share valuations.

Major indexes rallied on Monday, buoyed by M&A deals, while Shanghai?s composite scored its biggest daily rise since June 2005 after regulators approved two new stock funds.

'Markets are taking a breather after a recent strong rebound, but it looks like investment seems to have stabilised significantly,' said Mr Lee Sun-yeop, an analyst at Goodmorning Shinhan Securities.

Investors are betting that there might be no big rupture in global markets in the rest of the week because there are few scheduled major US economic data during the period.

On Wall Street on Monday, the Dow Jones industrial average and Nasdaq Composite index shed roughly 1 percent each.

Downgrades to financial institutions, such as American Express, combined with a report showing slower-than-expected factory orders, hurt other economically sensitive sectors such as home builders and retailers.

Certain stocks still basked in the afterglow of recent mega deals, which signalled that there was still plenty of value to be wrung out of some sectors.

KUALA LUMPUR
Share prices on Bursa Malaysia closed higher on Tuesday with the key index rising 0.89 per cent, supported by strong gains on plantations stocks, led by Kuala Lumpur Kepong (KLK) and Chin Teck Plantation (CHINTEK), dealers said.

KLK gained 60 sen to RM18.40 and CHINTEK added 55 sen to RM8.40 on the back of a sharp rally in the crude palm oil (CPO) prices.

'The market was relatively steadier. However, there were some investors who opted to cash in profits ahead of the Lunar New Year holiday,' one of the dealers said.

At close, the benchmark Kuala Lumpur Composite Index (KLCI) went up 12.69 points to 1,432.35. It had opened 6.53 points lower at 1,413.23.

The Industrial Index gained 12.67 points to 3,002.59, the Finance Index added 110.44 points to 10,891.8 and the Plantation Index surged 334.65 points to 8,169.48.

Gainers led losers 387 to 308 while 275 counters were unchanged, 450 untraded and 22 suspended.

HONG KONG
Hong Kong stocks fell 1.45 per cent on Tuesday as sentiment remained weak on concerns over a slowing world economy, but power plays such as CLP Holdings continued to shine.

Some short-term traders took profits after two straight days of gains and ahead of the Lunar New Year holidays, which start from Thursday. A drop in the US market overnight and weak Chinese A-shares had also encouraged selling, brokers said.

The benchmark Hang Seng Index had fallen 361.86 points to 24,670.22 by lunch, off a morning low of 24,504.53. The China Enterprises Index of Hong Kong-listed mainland companies, or H shares, ended the morning down 1.47 per cent at 13,912.95.

Mainboard turnover was HK$46.44 billion (S$8.4 billion), compared with Monday morning's HK$67.13 billion.

Investors were still cautious, however, fearing China could announce measures to deal with the weather crisis during the holiday that may have an impact on enterprises, traders said.

Hong Kong financial markets are closed on Thursday and Friday for the Lunar New Year holiday.

SHANGHAI
China's stock market fell nearly 2 per cent on Tuesday, led down by banking shares and index heavyweight PetroChina, after it soared on Monday in response to official measures in support of the market.

'Yesterday's rebound may be just a blip,' said Kong Linghua, strategist at TX Investment Consulting.

'There are plenty of things ahead to worry about: economic uncertainty, slowing corporate profit growth and a massive supply of equity, among others.'

The Shanghai Composite Index, which jumped 8.13 percent on Monday in its biggest daily rise since June 2005, ended Tuesday morning down 1.92 per cent at 4,582.690 points. It hit an intra-day low of 4,550.429.

Losers in Shanghai outnumbered gainers by 565 to 329 in moderate turnover.

TOKYO
Japanese stocks slipped on Tuesday, with exporters such as Honda Motor Co Ltd coming under pressure after downgrades of US credit card firms fuelled recession fears.

Investors dumped shares of companies issuing disappointing earnings results.Olympus Corp tumbled nearly 14 per cent after cutting its outlook due to a stronger yen and falling camera prices.

The benchmark Nikkei average was down 0.8 per cent or 114.20 points to end at 13,745.50, after a 2.7 per cent gain on Monday.

The broader Topix index was down 0.7 per cent or 9.24 points at 1,355.48. -- REUTERS