SYDNEY: Asian share markets extended their rally on Wednesday, led by another bounce in the Nikkei, as the Bank of Japan unexpectedly turned cautious on rate hikes amidst market volatility, which led to a sharp fall in the yen.

European markets are set to rally on opening, with EUROSTOXX 50 futures firming 0.9% and FTSE futures adding 1.0%.

Nasdaq futures rose 0.7%, having edged lower earlier in the day on a 12% dive in AI darling Super Micro Computer after it missed earnings estimates.

The Nikkei's 1.2% rise followed Tuesday's 10% rally, suggesting investors were finding their footing after the recent market rout. The index slumped 13% on Monday.

Sentiment had looked a little shaky early in Asia, but Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said in a speech to business leaders the central bank won't raise interest rates when financial markets are unstable, boosting risk sentiment.

The dollar jumped 1.8% to 146.84 yen and away from the 141.675 trough hit on Monday, though it remains far below its July peak of 161.96.

Hamilton Reiner, head of U.S. Derivatives at JPMorgan Asset Management, believes Japanese stocks would recover from Monday's 13% slump given the corporate reforms being undertaken by companies represented in the Nikkei.

"When you have an environment, the environment of macro and micro doesn't really change much, and you see this price action, it's really about an opportunity than fear."

Analysts at JPMorgan said the sell-off in Japanese stocks may almost be over, while there is also a view emerging that the unwinding of yen carry trades may be nearing completion.

The unravelling of the yen carry trade - where investors borrow yen at low rates to buy higher yielding assets - was a driving force in the market rout, but again seemed to be stabilising.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 1.7%. South Korean stocks added 1.7% while Taiwan surged 3.8%.

China's blue chip index rose 0.1% while Hong Kong's Hang Seng index gained 1.3%, after data showed that Chinese imports in July rose 7.2% from a year earlier, beating forecasts, in a positive sign for domestic demand, although growth in exports slowed.

Zichun Huang, China economist at Capital Economics, said the slowdown in exports was mainly due to lower prices while export volumes remained near record highs.

"We expect outbound shipments to stay strong for a while, not least because the exchange rate is moving in exporters’ favour," said Huang, adding that imports are expected to pick up further in the coming months due to stepped-up fiscal support.

With safe-haven in less demand, Treasury yields ticked higher for a second session. U.S. 10-year yields rose 2 basis points to 3.9069%, and well off Monday's low of 3.667%.

Two-year yields climbed back to 4.0116%, from a deep trough of 3.654%, as markets scaled back wagers on an intra-meeting emergency rate cut from the Federal Reserve.

Futures now imply 105 basis points of easing this year, compared with 125 basis points at one stage during Monday's turmoil, while a 50-basis-point cut in September was seen as a 73% chance.

Fears of an imminent U.S. recession had also faded a little as the run of economic data still pointed to solid economic growth in the current quarter.

The Atlanta Fed's much-watched GDPNow estimate is that gross domestic product is running at an annual pace of 2.9%.

In commodity markets, gold prices also turned higher, up 0.1% at $2,391.00 an ounce and short of last week's $2,477 top.

Oil prices remained volatile as concerns about waning global demand warred with the risk of supply disruptions in the Middle East.

Brent rose 0.2% to $76.63 per barrel, while U.S. crude was also up 0.2% to $73.36 a barrel.

 - Reuters