Australia

Australian shares are set to rise following gains overseas as investors were comforted by signs US interest rates may have peaked.

ASX futures were up 0.4% or 30 points as of 8:30am on Wednesday, suggesting a higher open.

US stocks rose for a third straight session and bonds had their best day since August, after optimism built that the Federal Reserve's campaign to raise interest rates is winding down.

The S&P 500 rose 0.5%, while the Nasdaq Composite gained 0.6%. The Dow Jones Industrial Average advanced 0.4%, or 135 points. Ten of the S&P 500's 11 sectors rose, after all 11 closed higher on Monday.

Several top Fed officials have recently suggested that they could be done raising short-term interest rates if long-term rates remain near their recent highs.

In commodity markets, Brent crude oil fell 0.4% to US$87.76 a barrel while gold was flat at US$1,860.39.

In local bond markets, the yield on Australian 2 Year government bonds was down at 3.94% while the 10 Year yield was also down at 4.45%. US Treasury notes were lower, with the 2 Year yield at 4.97% and the 10 Year yield at 4.65%.

The Australian dollar hit 64.30 US cents up from the previous close of 64.10. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, was up at 99.86.

Asia

Chinese shares closed lower amid lingering concerns about the country's economic growth as well as surging geopolitical tensions in the Middle East. "We believe investors are waiting for the consistent rollout of support measures and more concrete evidence that the economy, particularly the property market, is recovering," UBS's global wealth management chief investment office said in a note. Pharmaceutical and energy stocks led the losses. Jiangsu Hengrui Medicine declined 0.9% and WuXi AppTec shed 2.4%. PetroChina was off by 1.5% and China Petroleum & Chemical Corp. lost 2.15%. The benchmark Shanghai Composite Index closed 0.7% lower at 3075.24, the Shenzhen Composite Index declined 0.4% and the tech-heavy ChiNext Price Index slipped 0.5%.

Hong Kong shares closed higher, as gains in consumer and tech sectors lifted the market despite continued concerns about cash-strapped property developers. The benchmark Hang Seng Index rose 0.8% to 17664.73, while the Hang Seng Tech Index added 1.3%. Internet company NetEase led the gains as it advanced 3.25%, followed by e-commerce giant Meituan, which rose 3.1%. Electronics companies Xiaomi and Lenovo added 2.85% and 2.8%, respectively. Property shares slid as news that Country Garden failed to make an international debt payment fanned investors' worries about the fragility of the Chinese real-estate sector. The Hang Seng Mainland Properties Index dropped 0.9%, while Country Garden plunged 4.5% and fellow developer Longfor Group was down 0.9%.

Japanese stocks ended higher, led by gains in energy and defense stocks, as Hamas's attack on Israel led to sharp gains in crude-oil prices. Inpex soared 8.6%, Mitsui & Co. climbed 5.3% and Mitsubishi Heavy Industries advanced 5.9%. The Nikkei Stock Average rose 2.4% to 31746.53. Investors are focusing on crude-oil prices and U.S. Treasury yields as geopolitical tensions grow in the Middle East. The 10-year Japanese government bond yield fell 3 bps to 0.770%.

Indian shares rebounded after a risk-averse start to the week, tracking gains in most regional markets. Dovish comments from U.S. Federal Reserve Vice-Chair Philip Jefferson dialed down expectations of further tightening and lifted investor mood across global markets, OCBC analysts said in a research note. Financial services and bank stocks ledgains, with Kotak Mahindra Bank up 2.15% and Indian Railway Finance Corp. rising 6.3%. Bharti Airtel and JSW Steel were among the best performers on the benchmark index, gaining 2.9% and 2.1%, respectively. The Sensex closed 0.9% higher at 66079.36.

Europe

European markets rose as investor nerves steadied following the outbreak of violence in the Middle East. The Stoxx Europe 600, DAX, FTSE 100 and CAC 40 gained more than 1% after mostly upbeat Asia trading, though mainland Chinese stocks fell. IG futures data show the Dow opening at 33675, versus Monday's close of 33604. "Equity markets are bouncing back Tuesday after a risk-averse start to the week, buoyed perhaps by some promising Fed commentary Monday," OANDA analyst Craig Erlam writes. "It would appear the recent surge in bond yields hasn't gone unnoticed at the central bank, to the extent that Fed officials are coming across as less hawkish in their views."

The FTSE 100 climbed 1.6% to 7609.30 points as sentiment improves with the Middle East conflict relatively contained and comments by U.S. Federal Reserve members reassuring markets, Interactive Investor head of markets Richard Hunter said in a note. "The FTSE 100 was off to a brisk start, underpinned by broad-based gains in some of the more beleaguered sectors of late, such as the housebuilders and some of the retailers," Hunter says. Online grocer and technology company Ocado led gainers, up 5.3%. Heavyweight mining stocks were also broadly higher, with Anglo American gaining 4.7% and Antofagasta up 4.6%, as well as banks and financial stocks, with Barclays rising 3.4% and Prudential up 4.5%.

North America

US stocks rose for a third straight session and bonds had their best day since August, after optimism built that the Federal Reserve's campaign to raise interest rates is winding down.

The S&P 500 rose 0.5%, while the Nasdaq Composite gained 0.6%. The Dow Jones Industrial Average advanced 0.4%, or 135 points. Ten of the S&P 500's 11 sectors rose, after all 11 closed higher on Monday.

Several top Fed officials have recently suggested that they could be done raising short-term interest rates if long-term rates remain near their recent highs.

The 10-year Treasury yield settled at 4.654%, down from 4.783% on Friday, marking the largest one-session drop since Aug. 23. The two-year yield fell to 4.982% from 5.077% on Friday, its lowest level since Sept. 8. Bond markets were closed Monday.

That reversed a recent selloff that has plagued stock markets. The 10-year yield, a key benchmark for corporate borrowing costs and the present value of future profits, recently topped 4.8%, reaching its highest level since 2007.

Ironically, that run-up in yields might have reduced the need for further action from the central bank, sparking Tuesday's decline. "The rest of the fixed income marketplace is doing some of the work on behalf of the Fed," said Jason Pride, chief of investment strategy and research at Glenmede, which manages about $43 billion in assets.

Traders in interest-rate derivatives are pricing in an 88% chance that the Fed leaves its policy rate unchanged at its November meeting, according to CME Group's FedWatch tool.

Investors are awaiting fresh economic data that could further raise the chances of the central bank standing pat. Fresh producer-price data for September is scheduled for Wednesday, while the consumer-price index reading for September is expected Thursday.

Wall Street expects that consumer prices rose 3.6% from a year earlier, according to economists surveyed by The Wall Street Journal.

Some strategists expect yields to drop further if that data points to a cooling economy. "Job growth appears strong, wage growth has slowed, and people have drawn down on their savings," said Luke Tilley, chief economist at Wilmington Trust.

Markets rallied despite fighting in the Middle East. "I think that markets and the actors in them are still somewhat unsure about how to deal with geopolitics and how much weight to give it," said Cameron Brandt, director of research at market-data firm EPFR.

Brent crude oil futures settled at $87.65 per barrel, down 0.6% from Monday. Travel-related stocks including Delta Air Lines, Marriott International and Carnival rebounded after Monday's selloff.

PepsiCo shares rose 1.9% after the company reported earnings that topped Wall Street expectations. Several major companies, including JPMorgan Chase, Delta, UnitedHealth Group, Domino's Pizza and Wells Fargo are slated to report results later this week.