Japanese stocks approach 2-yr high, euro sags after Draghi's comments

TOKYO - Japanese stocks closed in on two-year highs early on Tuesday thanks to a weaker yen while the euro sagged against its peers after European Central Bank President Mario Draghi talked up benefits of the ECB's easy monetary policy.

Japan's benchmark Nikkei advanced 0.4 percent to 20,235.79. A rise above 20,318.11, a peak scaled a week ago, would take the Nikkei to its highest since August 2015.

A weaker yen, a boon to export-reliant Japan, usually underpins the Tokyo market as the economy looks to global demand to drive growth.

MSCI's broadest index of Asia-Pacific shares outside Japan stood flat. Australian stocks lost 0.3 percent while South Korea's KOSPI was unchanged.

Elsewhere, regional markets were sluggish early on Tuesday as Wall Street provided few catalysts after the S&P 500 and the Dow closed overnight effectively flat.

There was also a general sense of caution in financial markets, analysts said, noting that commodities like crude oil were still a little shaky though for now they have managed to stem the recent selloff.

"Although iron ore and crude prices are stabilizing, their recovery lacks strength. The US equity market also hovers at a high level, but its performance is spotty with high-tech shares falling," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"All in all, it is not a full 'risk on' situation."

Oil prices extended gains as some traders picked out bargains after last week's seven-month lows, but rising crude supply in the United States and other countries limited gains.

US crude futures was up 0.15 percent at $43.45 a barrel. The contract had retreated to a 10-month low of $42.05 a barrel last week before the sharp retreat stalled. They were on track for a monthly loss of about 10 percent.

The crude market is battling a stubborn global glut despite an effort led by OPEC to cut production in place since January.

In currencies, the euro was steady at $1.1181.

The common currency rose to an 11-day high of $1.1220 earlier on Monday on weaker-than-expected US data.

New orders for key US-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.

But the euro retraced its gains after ECB's Draghi defended the central bank's easy monetary policy.

Draghi said on Monday that super low rates create jobs, foster growth and benefit borrowers, ultimately easing inequality. He also rejected calls to exit super easy monetary policy quickly, arguing that premature tightening would lead to a fresh recession and more inequality.

The dollar was a shade higher at 111.950 yen after gaining about 0.5 percent overnight, lifted by the flagging euro.

The US currency managed to hold gains, despite lower Treasury yields, ahead of Federal Reserve Chair Janet Yellen's speech due later on Tuesday.

Dollar bulls will be hoping that Yellen will validate the Fed's inclination to keep raising interest rates after this month's tightening.

Long-dated Treasury yields dropped to seven-month lows on Monday and the yield curve between five-year notes and 30-year bonds fell to its flattest level since 2007 after the weak US economic data raised concerns about tepid growth and slowing inflation. —Reuters