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Increased investor appetite for riskier assets was also evident in the bond market, with the five-year Japanese government bond yield climbing to a 15-month high, continuing a global trend of rising yields on government debt.

China raised interest rates by 25 basis points late on Tuesday, its second increase in just over six weeks. The timing was a surprise, coming on the final day of the Lunar New Year holiday, but investors had been expecting further tightening from Beijing to rein in stubbornly high inflation.

"Chinese policymakers' efforts to rein in overheating pressures are now seen in a relatively more positive light by global investors in that they will help slow growth to a more sustainable pace, while other engines of growth in the region begin to rev up," said Samarjit Shankar, analyst at BNY Mellon.

Mainland Chinese stocks .SSEC on their first day of trading following a week-long break, see-sawed between positive and negative territory and Hong Kong shares .HSI opened firmer before dipping into the red. .SS

Japan's Nikkei .N225 was up 0.2 percent after touching a 9-month high and Australia's benchmark index .AXJO was also up 0.3 percent. .T

But MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent, weighed down by a 1 percent decline in South Korean stocks .KS11, with market players reporting weakness in firms most exposed to China and a stronger won.

"The Chinese rate hike had been expected for some time," said Lee Sun-yeb, a market analyst at Shinhan Investment Corp in Seoul. "However, investors are reacting to it be offloading issues that are sensitive to forex swings and Chinese demand."

SWITCHING FUNDS

Japan has been Asia's best performing market so far this year as healthier corporate profits and worries about building inflationary pressures have encouraged investors to switch money from fast-growing emerging markets -- last year's star performers -- to developed market equities.

The Dow Jones industrial average .DJI notched a seventh straight day of gains on Tuesday, rising 0.6 percent, as surprisingly strong sales by McDonald's boosted optimism about consumer spending.

But technical indicators show it is overbought after a strong run-up that began in September, leaving U.S. markets prone to a pullback or a correction.

While monetary policy in the rich world remains ultra-loose, central banks in emerging markets, especially in Asia, have been tightening policy to rein in inflation fueled by rising commodity and energy prices and strong domestic growth.

Higher borrowing costs in China could support Asian currencies -- generally unwelcome for the exporters that power many regional economies -- by highlighting policymakers determination to tackle rising prices.

"Looking at this rate hike from a regional perspective, it is a necessary move to curb inflation pressures in the region," said Pin Ru Tan, emerging markets forex and rates strategist at the Royal Bank of Scotland in Singapore.