HONG KONG, China (Reuters) -- Asian stock markets rose on Thursday with regional shares reaching their highest in more than a week thanks to extended gains on Wall Street, but improving risk appetite weighed on the low-yielding yen.
A passerby walks past a bank displaying the movements of the Hang Seng Index in Hong Kong Wednesday.
The firmer tone in regional markets was not expected to reach Europe, where financial bookmakers are calling for Britain's FTSE 100 to open little changed, taking a pause after two sessions of robust gains.
Safe-haven plays such as U.S. Treasuries and Japanese government bonds (JGBs) also struggled, still reeling from the U.S. Federal Reserve's positive comments on the world's biggest economy this week.
But many market players remained cautious, believing markets are not out of the woods yet and worried the recent selloff sparked by fears of a global credit squeeze could easily return.
"Corporate earnings are good and the market seems to have calmed down. But investors cannot be bullish just yet as there could be more bad news," said Soichiro Monji, chief strategist at Daiwa SB Investments' equity management department.
Tokyo's Nikkei average rose 0.8 percent to its best close since July 31, while MSCI's measure of Asia Pacific stocks excluding Japan advanced 1.1 percent to one-week highs by 0618 GMT.
The MSCI index is now flirting with the 38.2 percent Fibonacci retracement of the 9.8 percent fall from a record high on July 24 to a trough on August 6.
Major regional markets were up between 0.3 percent and 1.5 percent. South Korea's KOSPI pared early gains to end just 0.3 percent higher after a surprise interest rate hike by the Bank of Korea.
"The rate hike this month was totally unexpected. It shows the authorities are determined to curb excess liquidity in the markets," said Kim Seong-joo, an analyst at Daewoo Securities.
Chinese mainland stocks also rose, pushing the Shanghai Composite Index to yet another record high, while Singapore's financial markets were closed for the National Day holiday.
Among individual stocks, Australia's Adelaide Bank soared 14.7 percent after Bendigo Bank said it would buy the regional lender for about US$1.6 billion, while Japan's Fast Retailing jumped 10.5 percent after losing a bid to buy Barneys New York chain to rival suitor Istithmar.
Investors sold Telstra Corp., sending its shares down 4 percent after the Australian phone company offered a cautious outlook for 2008.
In the currency markets, the yen struggled to make any headway, as strength in stock markets fueled carry trades using the low-yielding Japanese currency.
In carry trades, investors borrow in low-interest rate currencies such as the yen to invest in higher-yielding, riskier assets.
The dollar at 119.56 yen was hovering not far off a two-week peak near 119.90 yen set on Wednesday, while the euro traded at 165.13 yen also near a two-week high of 165.43 yen.
Against the dollar, the single currency was a touch firmer at $1.3807 from late New York levels.
The yield for Japan's 10-year government bonds climbed 2 basis points to 1.785 percent, after having reached a near one-week peak of 1.805 percent earlier in the session. E-mail to a friend 
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