Only a small percentage of speculators expect the Fed to make further easing moves and gains in the dollar could occur if that view becomes reality. However, it is seen as more likely that the Fed will signal its readiness to act if necessary.

Asian shares climbed following  a positive lead from Wall Street and the likes of IBM had pushed the S&P 500 .SPX to a four-month closing high due to optimistic corporate news.

Japan’s Nikkei increased by 0.4 percent to a seven-week high but the concern is still there that the yen could spike again despite last week’s intervention to halt it by the authorities.

“If you ask whether the mood has turned positive, it is hard to say yes”, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, “even if a worsening in market sentiment has come to a halt”.

Gain by US Treasuries saw Japanese government bonds rise. Any hint the Federal Reserve may be lean toward further quantitative easing is seen as positive for the US debt market.

US crude for October delivery was down 47 cents to $74.39 a barrel ahead of the contract’s expiry later today while gold was steady around $1,278 an ounce.

MSCI’s index of Asian shares outside Japan rose by a further 0.2 percent, with the energy sub-index the biggest riser.

US crude for October was unchanged at $73.66 a barrel, while ICE Brent for November rose 12 cents to $78.33.

The Federal Open Market Committee (FOMC) is due to meet on Tuesday to decide on US interest rates and issue a policy statement about the economic outlook.

No new steps to ease monetary policy are expected but a renewed promise to keep its portfolio from shrinking is planned.

“If they lower their forecasts as some people are expecting, oil prices would be pushed down because it implies lower demand,” said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

The closure of the biggest Canada-U.S. crude pipeline led money managers to increase net-long crude oil positions on the New York Mercantile Exchange (NYMEX) to almost 114,000 in the week to 14 September, up from below 78,000 the week before.

Distress over jobs and finances intensified among upper-income families, showing US consumer sentiment unexpectedly worsened to its weakest since August 2009.

“The data was poor and sets a very weary outlook for consumers,” Kwek said. “Another major thing is the revival of European sovereign debt concerns”.

The Irish government denied the latest rumours of whether or not it will seek help from the International Monetary Fund. The Irish Independent newspaper had previously admitted the nation was “perilously close” to calling in the Fund and the European Union.

Gold was pushed to an all-time high on Friday following weak data. Consumer morale dropped to its lowest in 13 months in August while underlying inflation pressures have kept fears of deflation in mind and have encouraged speculation on further monetary easing.

“For today at least, the market will continue to speculate on more quantitative easing, which should provide some support to gold,” said Ong Yi Ling, an analyst at Philip Futures.

An array of European data concerning manufacturing, consumer confidence and Germany’s business climate is expected to add further evidence of a slowdown in recovery which will add even more fuel to speculation on economic uncertainty.

Spot gold edged up 0.4 percent to $1,281.15 an ounce by 0624 GMT,

Friday’s all-time high figure of $1,282.75 was almost matched by the US gold futures for December, up 0.4 percent to $1,283.1 an ounce.

Spot gold may retrace to $1,265 per ounce as a small five-wave cycle is seen over the Friday high of $1,282.75, according to Wang Tao, a Reuters market analyst.

Holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P) were at its highest since the beginning of the month, rising by 6.079 tons to 1,300.825 tons by 17 September.

“We expect more physical demand from India and China,” said Peter Fung, head of dealing at Wing Fung Precious Metals. “The year-end holiday season should be good for the physical market”.

Spot silver climbed 0.6 percent to $20.89 an ounce, after hitting $20.99 on Friday, its highest in the past two-and-a-half years and chasing the the March 2008 peak of $21.24.

The 670,000-barrel-per-day (bpd) Enbridge pipeline, which transports oil from Canada to the US will reopen on Friday after a one-week closure for essential maintenance.

October’s US crude futures dropped to a low of $75 a barrel before recovering to around $75.20. The contract hit a one-month high above $78 on Monday following concerns over the pipeline’s outage.

Some traders believe the price could slip even lower after the reopening of the pipeline which will remove a major support for prices.

Last week’s drop in US petroleum stockpiles did little to raise concerns over a surplus of crude oil.

US crude oil inventories fell by 2.49 million barrels last week to 357.37 million barrels. This figure was in line with expectations.

US distillate stocks fell 340,000 barrels, including diesel and against analyst expectations for a 300,000 barrel gain. Gasoline stocks dropped, as expected, by 694,000 barrels.

“With the latest Norwegian production statistics revealing a year-on-year fall in output in August of 417,000 barrels per day, the heaviest fall in any month in more than three years,” Barclays Capital analysts said in a report.

“Combined with relatively low European crude inventories and the dispersal of floating storage, it is not difficult to find a set of reasons why the Brent market should be considerably tighter than that of WTI” the report added.

Mexico’s Yucatan Peninsula was hit by Tropical Storm Karl on Wednesday and may reach hurricane strength when it arrives at the Gulf of Mexico, where several major Mexican oil installations are situated.

Ichiro Ozawam, who had made a strong case to curb the yen’s rise lost out to Kan who remains in power.

The dollar went as low as 83.09 yen and by early morning it had recovered slightly to 83.31, down a total of 0.4 percent for the day.

“Ozawa had made comments that had been stronger on intervention, so there was a knee-jerk reaction to Kan’s win,” said Simon Derrick, head of currency research in Bank of New York Mellon.

“The threat of intervention will hang over the market but will there be international cooperation? Probably no. So the market will continue to test Kan’s resolve” he added.

Any rise in the dollar may be short-lived, according to traders with Monday’s 84.43 intraday peak viewed as the first point of resistance. This is because further dollar selling by Japanese exporters is expected ahead of their half-year book closing on September 30.

“Clearly the market viewed the (party vote) result as yen positive,” said Christian Lawrence, currency strategist at RBC Capital Markets, “and the yen is likely to continue drifting higher both against the dollar and on the crosses”.

The dollar experienced a one-month low against a basket of currencies .DXY after suffering its sharpest fall against the euro in two months on Monday as investor risk appetite helped the euro.

Lenders were given some respite after a deal on global bank rules meant they can put off having to raise hundreds of billions of dollars in fresh capital.

Japan’s Nikkei average .N225 ended 0.9 percent higher, while the MSCI index of Asian shares outside Japan .MIAPJ0000PUS increased by 1.8 percent as data from China and the USA encouraged investors to return to riskier assets.

An index of leading European shares .FTEU3 climbed 0.7 percent, while US S&P 500 futures increased by almost one percent, indicating a stronger opening on Wall Street later on Monday.

“We are seeing quite decent data, especially from China, and the US data also helped,” said Lorraine Tan, director of Asia equity research at S&P in Singapore.

“We do think markets are bottoming out… Unless there is a major shock, markets will trend upwards.”

August saw an increase in Chinese factory production and the money earned was a lot higher than what analysts expected, according to Saturday’s data.

This showed a buoyant economy despite efforts from the government to curb the banks lending money and speculation on property.

US wholesale inventories increased in July the most it had in two years, according to data on Friday. This suggests economic growth in the third quarter of the year may prove slightly stronger than what forecasters had anticipated.

Recent data has helped dispel certain fears the USA could slide back into recession despite it seemingly mired in a slow-growth path.

The weaker prospects of growth for 2010 growth came from lower expectations for consumer spending, business investment and private construction according to the latest Blue Chip Economic Indicators report on Thursday.

“Growth in the current quarter now is expected to be little better than the disappointingly soft advance registered last quarter,” said the survey.

Gross domestic product growth was low at just 1.6 percent annual rate in the second quarter, a figure less than half of the first quarter’s 3.7 percent rate.

However, a gradual improvement trend was spotted with growth surpassing trend rate a little in the second half of 2011 according to the group.

“Given the depth of the recession, a forecast of roughly trend growth this year and next amounts to a very disappointing pace of recovery, with little progress expected to be made in lowering the unemployment rate,” the forecast said.

Its consensus forecast is that the unemployment rate in the US will finish this year at 9.6 percent and fall only to nine percent by the end of 2011.

After averaging 554,000 new housing units in 2009, it forecast that it will rise this year to 600,000 and up to 760,000 units in 2011.

“Although residential investment appears destined to subtract from GDP in the second half of this year, double digit growth is expected by early 2011, with rates of growth over 30 percent by the second half” said Blue Chip.

October saw US crude fall as high as 1.25 percent to $73.67 and was down a further 91 cents at $73.69 a barrel this morning, having extended losses in a three-day session including trades recorded on Sunday, Monday and Tuesday due to the US Labor Day holiday.

Tuesday also saw the euro take a dip from a three-week high against the dollar as concerns over the European banking sector re-emerged and caused investors to cut risks. The dollar was up almost 0.5 percent against a basket of currencies.

“The U.S. dollar seems to have stopped to decline”, said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan, “but with the holiday in New York, all markets are going to be very quiet”.

“Crude oil to some extent will have influence from financial markets, but it is completely stuck in a range from $70 to $80. It’s very comfortable for everyone”.

Front-month US crude has hovered between $70 and $80 for most of the year, a range that OPEC claims is high enough to encourage investment in capacity expansion yet low enough to sustain recovery in the economy.

A stronger dollar lessens the purchasing power of oil users who are outside the USA.

Asian stocks almost reached a one-month high earlier on Tuesday before dropping as investors awaited new Chinese data. Continued moderation in economic growth in August is expected at the second-largest oil-consuming nation in the world.

A report in the Wall Street Journal stated recent “stress tests” done on of the strength of major banks in Europe underestimated some lenders’ holdings of government debt deemed risky.

Investors were persuaded by such concerns to consolidate their positions after a broad rally in risky assets due to an optimistic US jobs report last Friday.

“It’s shedding more light on how effective the stress tests were and how much they revealed,” said David Schnautz, Commerzbank rate strategist, “bringing those fears back on the table”.

There were drops all around with MSCI world equity index .MIWD00000PUS falling 0.4 percent, after reaching the one-month peak on Tuesday and the Thomson Reuters global stock index .TRXFLDGLPU saw a third of a percent wiped out.

The FTSEurofirst 300 index .FTEU3 dipped by half a percent, led by banking shares .SX7P such as Societe Generale (SOGN.PA).

The euro saw falls of 0.6 percent to $1.2793 and dropped by more than one percent to the yen at 107.10.

Elsewhere, the dollar rose 0.4 percent against a basket of major currencies .DXY. and partly as a result of a strong dollar, U.S. crude oil fell 1.5 percent to $74.37 a barrel.

The Bank of Japan held off on loosening monetary policy further on Tuesday but reiterated it would take action when necessary, possibly next month if the evidence is clearer of the strong yen’s impact on the slowing economy.

The economy may not be headed for another severe downturn as feared after a positive government’s nonfarm payrolls report on Friday.

All three major US stock indexes increased more than one percent on Friday.

September is usually the weakest month for the market but the Standard & Poor’s 500 Index .SPX began on a strong note, gaining 3.8 percent for the week, it’s best in eight

In contrast, for the month of August, the S&P 500 fell 4.7 percent.

“The data forces a re-evaluation of the underlying thesis of the economy” said Charles Lieberman, chief investment officer of Advisors Capital Management LLC, “and how the stock market is priced”.

“The employment report is really the keystone. If the economy is producing jobs, the thesis of a decline in the economy goes out the window,” he added.

The most difficult hurdles as the economy attempts to recover from the worst downturn since the 1930s has been high unemployment and weak consumer spending.

The catalyst for a bullish end to the week was Friday’s jobs report because although overall payrolls shed jobs for the month of August, the decline was much lower than expected.

This news gave a ray of hope for the recovery according to analysts.

Other positive data this week showed an unexpected rise in the Institute for Supply Management index on U.S. manufacturing, stronger-than-expected homes pending sales in July and a second week in a row of lower initial jobless benefits claims.