TOKYO (REUTERS) - Asian shares rallied on Wednesday (Feb 16) as fears of a Russian invasion of Ukraine this week dissipated after Moscow indicated it was returning some troops to base from exercises, delivering investors a measure of relief.

Oil also rebounded after the biggest one-day loss this year, with the West Texas Intermediate rose toward US$93 a barrel after slumping 3.6per cent earlier on Tuesday. 

The tension between world powers over the Ukraine situation, which has developed into one of the deepest crises in East-West relations for decades, has been front-and-centre of investors' minds.

MSCI's broadest index of Asia-Pacific shares outside Japan surged 1.23 per cent on Wednesday, playing catch-up with a rally in United States and European stocks on Tuesday.

"If we continue to see signs that diplomacy is working and a de-escalation of tensions, I think we'll see a kind of reversal trade," said Mr Kyle Rodda, a market analyst at IG in Melbourne.

"We'll probably see stocks boosted on the fact that implied volatility is a little bit lower," Mr Rodda said, adding that it would likely weigh on oil and gold prices.

Japan’s Nikkei soared 2.22 per cent to rebound from two days of falls, while Australia’s S&P/ASX200 gained 1.08 per cent.

Hong Kong’s Hang Seng Index jumped q.49 per cent, and China’s Shanghai Composite was up 0.57 per cent.

Singapore’s Straits Times Index was up 0.52 per cent. 

Investors' attention was likely to turn to economic and monetary policy developments amid ongoing speculation the United States Federal Reserve might raise rates by a full 50 basis points in March.

Among events in focus, was the release of the minutes from the US Federal Reserve's January policy meeting later on Wednesday as well as January consumer inflation data from Britain and Canada.

China's factory gate and consumer price inflation both came in lower than expected in January, data on Wednesday showed.

The tension surrounding the Ukraine situation has "distracted from the fact there are still major risks and concerns about global monetary policy and how that could affect financial markets", Mr Rodda said.

"That could resurface as a driver for volatility as geopolitical tensions ease a little bit."

The yield on benchmark 10-year Treasury notes was at 2.0311 per cent compared with its US close of 2.056 per cent on Tuesday. The two-year yield, which goes up with traders' expectations of higher Fed fund rates, was at 1.5569 per cent compared with a US close of 1.5774 per cent.

Currency markets were pretty quiet, with the US dollar index holding steady at 96.009 after pulling back from a two-week high on Tuesday after the Ukraine geopolitical risk premium came out of the market.

"Expectations of an aggressive Federal Reserve hike cycle should keep a base for the DXY in place," analysts at Westpac said in a note.

The yen traded at 115.67 per dollar.

US crude was down a notch at US$91.98 a barrel after pulling back from a seven-year high hit on Monday. Brent crude was down 0.1 per cent at US$93.16 per barrel.

Gold was slightly lower. Spot gold was traded at US$1,850.54 per ounce.