By Chikako Mogi
TOKYO (Reuters) - Asian shares rose on Wednesday, led by surging Chinese equities, but concerns over whether U.S. lawmakers can break a budget impasse before year-end to avert a possible economic slump weighed on sentiment.
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.6 percent, gaining momentum as Shanghai shares surged 3 percent to reclaim the 2,000-point level.
Chinese shares were boosted by remarks late on Tuesday from new Communist Party chief Xi Jinping, who said that the government aimed to stabilise exports and make policies more targeted and effective.
Hong Kong shares jumped 1.2 percent, Australian shares rose 0.3 percent and Japan's Nikkei stock average erased earlier losses to inch up 0.1 percent.
The HSBC Purchasing Managers Index for China's services sector released on Wednesday showed the index slipped to 52.1 in November from October's 53.5, but overall, China's economic health has improved since September.
Recent indicators from factory output to retail sales and investment reflected effects from Beijing's pro-growth policies.
Growth prospects for China, the world's second-largest economy, and a fiscal crisis facing the world's top economy remain underlining market themes, but daily flows are increasingly being dictated by year-end position reshuffling, with price swings magnified by thinning activity ahead of the holidays, traders said.
The White House and Republicans remain at odds on how to avoid a $600 billion "fiscal cliff" of budget cuts and tax increases starting from January 1.
President Barack Obama dangled the possibility on Tuesday of lowering tax rates in 2013 with a broad U.S. tax code revamp, but stood firm on insisting rates for the wealthiest must rise as part of a budget deal with Congress.
"He was relatively conciliatory, proposing a two-stage approach of a short-term gain for both sides, then deal with the bulk of the problem in 2013," Sebastien Galy, currency strategist at Societe Generale, said in a note to clients.
The Obama scenario had been expected by markets and drove the dollar down, but saw risky assets rise.
"This rally in risk is tempered by a steady profit taking as investors close their books for the year and some need to lock in their profits ... It can be seen in precious metals among others or long cross yen. Short term redemptions are a factor in December after a difficult year," Galy said.
Despite the uncertainty, markets hope U.S. lawmakers will eventually reach a budget compromise, but the White House and Congress have yet to agree on a long-term deficit reduction plan.
Risk sentiment was also supported by receding fears about the contagion risk of the euro zone's debt crisis after a Greek plan to buy back debt pushed the euro to a fresh seven-week high of $1.3117 on Wednesday.
Better-than-expected terms for a Greek debt buy-back plan, which is a crucial component of a deal reached last week by international lenders to cut the country's debt, raised optimism that Athens will secure much-needed emergency aid to avert a default.
SUPPORT FOR EURO
"The news helped those who were sceptical of Greece cover their short euro positions but at this time in the year, market acitvity will be influenced by position adjustments before the year-end holidays, with each currency pair moving on its own factor," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
Maeda said the euro could test stops at $1.3140-$1.3150 but capped around $1.32 while the dollar remained firm against the yen, with support seen firm at 80-81 yen.
"Friday's U.S. nonfarm payrolls will be key to market sentiment and the U.S. fiscal issue will be the primary focus for markets," he said.
But other analysts noted that the impact of superstorm Sandy on the U.S. Northeast in November may make it difficult to get a clear picture of the labour market.
The dollar climbed 0.4 percent against the yen to 82.27 yen.
Australia's resource-reliant economy grew a moderate 0.5 percent last quarter due to a series of business investment, but lower export revenues, government cutbacks and a decelerating mining boom painted tougher times ahead.
The Reserve Bank of Australia (RBA) cut interest rates to a record-matching low of 3 percent on Tuesday. The local dollar held around $1.0470.
Spot gold inched up 0.2 percent to $1,700.86 an ounce, after falling about 1 percent on Tuesday to its lowest in nearly a month as prices broke below key support levels.
U.S. crude futures were up 0.3 percent to $88.72 a barrel and Brent futures were up 0.2 percent to $110.
(Editing by Michael Perry & Kim Coghill)