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All eyes were on whether Lisbon would be able to raise funds in the debt market on Wednesday, its first bond auction of the year, or if soaring borrowing costs will force it to turn to the IMF and European Union for help.

Japan offered a show of support for Europe's struggle with debt, saying it would tap its euro reserves to buy bonds this month for an Irish rescue plan, but the market doubted it would provide much relief.

"I don't think these comments (by Japanese Finance Minister Yoshihiko Noda) change the backdrop for the euro at all," said Todd Elmer, currency strategist for Citi in Singapore.

"Despite the fact that we're seeing this groundswell of international support, it doesn't really change or address the underlying problem and that's not going to change until the European authorities themselves come up with a more comprehensive solution to mitigate the fallout from the debt crisis."

Japan does not disclose the currency breakdown of its $1 trillion reserves and analysts think only a very small portion is in euro.

The euro rose as high as $1.2992 on trading platform EBS from around $1.2925 in early Asian trade, but quickly pared its gains to stand little changed on the day. At 0551 GMT, it was below its 200-day moving average at $1.2940, just above a four-month trough hit on Monday.

Tokyo's benchmark Nikkei index .N225 slid 0.3 percent on worries about the euro zone and overnight weakness on Wall Street, after hitting an eight-month closing high on Friday. Tokyo markets were closed on Monday for a public holiday. The broader Topix index was slightly higher.

The MSCI index of Asia Pacific stocks ex-Japan .MIAPJ0000PUS inched up 0.2 percent, with Hong Kong's Hang Seng Index .HSI up almost 1 percent.

Gold rose on worries about Portugal's debt, maintaining bullion's appeal as a safety net. A softer dollar typically helps gold because it makes the metal more affordable for holders of the euro and other currencies.

Spot gold was up $1.35 at $1,375.80 an ounce at 0549 GMT. The focus for the metal was Portugal's Wednesday bond aution.

Portugal is widely seen by investors as next in line in the euro zone to need a bailout after Greece and Ireland, but the government has repeatedly denied that it will seek foreign financing.

The European Central Bank threw Lisbon a temporary lifeline on Monday by buying some of its bonds, traders said.

The Dow Jones industrial average .DJI lost 0.3 percent on Monday, while the Standard & Poor's 500 Index .SPX edged down 0.1 percent. The Nasdaq Composite Index .IXIC gained 0.2 percent. .N

U.S. crude prices were steady above $89 on Tuesday as a key Alaskan oil pipeline remained shut, cutting total crude output by nearly 12 percent in the world's largest oil user.

(Editing by Kim Coghill)

At the same time, a record $199 billion surge in foreign exchange reserves in the fourth quarter pushed China's stockpile, already the world's biggest, to $2.85 trillion, highlighting that money streaming in from abroad was complicating policy efforts at home.

Chinese banks issued 7.95 trillion yuan ($1.2 trillion) in new loans last year, the central bank said on Tuesday, more than the 7.5 trillion yuan that the government wanted for the full year. The broad M2 measure of money supply grew 19.7 percent, also topping the official target of 17 percent.

"Lending is still excessive and China's process of monetary normalization has not finished yet," said Wu Tujin, economist with Guosen Securities in Shenzhen. "That means China will still face high pressure from inflation and asset bubbles."

More than just an economic issue, high-speed money and credit growth has become a political concern, helping propel Chinese consumer inflation to its fastest in more than two years.

Determined to rein in rising prices, a source of public discontent, the government declared late last year that it would shift to a tighter monetary policy stance. Some effects of that could be seen in the data for the final month of the year.

Chinese banks extended 481 billion yuan in new loans in December, down from 564 billion yuan in November and the lowest in one year.

MORE TIGHTENING TO COME?

But the December figures also showed that the impact of policy tightening thus far has been less severe than the market had expected. The median forecast of economists was for issuance of 380 billion yuan in new loans.

And the 19.7 percent in annual M2 growth was quicker than the 19.5 percent pace in November and far faster than the 18.9 percent increase expected by analysts.

"Lending was still very strong despite constant regulatory efforts to contain the pace. That shows there is robust demand for loans from the real economy," said Ren Xianfang, economist with IHS Global Insight in Beijing.

"I expect January data will be even higher. That will prompt the Chinese authorities to take pre-emptive steps," he said.

The People's Bank of China raised interest rates twice last year and officially increased lenders' required reserves six times. Economists polled by Reuters expect two further increases of both interest rates and required reserves in the first half this year.

But the central bank on Tuesday allowed just a mild rise in auctioned bill yields and also mopped up liquidity through open-market operations, signaling that it will keep rates and reserve ratios stable until early February.

In another move to ease the build-up of cash in the economy, China will allow residents of the wealthy coastal city of Wenzhou to invest in select markets overseas, an experiment in liberalizing the tightly controlled capital account.

Finance Minister Yoshihiko Noda told reporters after a cabinet meeting on Tuesday that Tokyo was considering buying about 20 percent of euro zone bonds to be jointly issued later this month to raise funds to support Ireland. Japan would use its existing euro reserves to pay for the debt, Noda said.

Japan's offer comes days after China reaffirmed its commitment to buy Spanish debt and analysts said it reflected both Tokyo's concern about the impact of the crisis on its export-reliant economy and an effort to reassert itself on the global stage.

"I think it's appropriate for Japan to purchase a certain amount of bonds to boost confidence in the EFSF (European Financial Stability Facility) and make a contribution as a major country," Noda said.

The European Union set up the 440 billion euro fund as a safety net for heavily indebted euro zone nations, but it failed to deter investors from betting on more bailouts.

A finance ministry source told Reuters that Japan would continue to buy bonds issued under the scheme as part of its commitment as a Group of Seven nation to stabilising the world economy and containing the debt crisis. The official declined to be named because he was not authorized to speak to the media.

Tokyo's pledge also follows reports that the European Central Bank was buying Portuguese bonds on Monday, after speculation that Portugal would soon follow Greece and Ireland in seeking an international bailout pushed the euro to four-month lows.

Japan's announcement lifted the single currency as far as $1.2992 on trading platform EBS from around $1.2925.

But it pulled back later when it became clear that Tokyo would use its existing euro reserves to buy the bonds and analysts expected the impact of Japan's gesture to be short-lived.

"I don't think these comments change the backdrop for the euro at all," said Todd Elmer, currency strategist for Citi in Singapore.

"Despite the fact that we're seeing this groundswell of international support, it doesn't really change or address the underlying problem and that's not going to change until the European authorities themselves come up with a more comprehensive solution."

CHINA'S CLOUT

Analysts said that besides concern that an escalating debt rout in Europe could thwart Japan's own recovery, Tokyo might also be acting to preserve its standing in global economic diplomacy after Beijing seized the initiative.

China's declared support for Spain -- euro zone's fourth-largest economy seen most at risk of contagion from Portugal's troubles -- follows Beijing's pledges last year to buy bonds issued by Greece, the first euro zone nation to need a rescue.

"With China pledging to buy euro zone bonds and its currency-based diplomacy increasingly prominent, Japan appears to be trying to follow suit to secure European support in possible future negotiations, either with the United States or China," said Yasunari Ueno, chief market economist at Mizuho Securities.

But Alcoa shares, which hit a 12-month high last week, dropped 1.3 percent to $16.24 in after-hours trade on the New York Stock Exchange, with some analysts questioning whether the company's bullish forecast was realistic. Others suggested some profit-taking by investors.

"Pretty much every one of our end markets is improving," Chief Executive Officer Klaus Kleinfeld told analysts on a conference call when asked about his projection for a 12-percent global increase in aluminum demand.

"We do not expect the substantial growth to come from the U.S. and Europe. We believe that those emerging economies will accelerate and there the driver pretty much is infrastructure building, and all the other end markets that we are seeing, from automotive to packaging to building and construction."

Kleinfeld said Alcoa expects demand growth in the aerospace sector to increase 7 percent in 2011 and 5-11 percent in the auto industry.

The beverage can sector was likely to be flat to 2 percent higher this year, but Alcoa sees commercial construction industry demand for aluminum increasing 2 percent to 3 percent. In fact, he said the building sector, which was particularly badly hit by the recession, appeared to be improving.

"When you look at the monthly contracts awarded and the construction starts ... it looks really like a bottoming out. It is not dropping further.

"So it could well be, if you take an optimistic perspective, that we might be seeing the bottoming out of this market here in the U.S."

Analyst Curt Woodworth of Macquarie Research said Alcoa's outlook was "phenomenally strong and probably conservative."

But he noted that although the quarterly financial results beat Wall Street estimates, they were below the Street's unofficial "whisper number." He also said some investors might have been taking a profit after Alcoa's stock rose recently.

Marc Pado, a market strategist at Cantor Fitzgerald & Co, said the projected 12-percent demand increase was higher than expected. "The question arises then whether the economy is going to be picking up the pace for this kind of increase in demand."

Analyst John Tumazos, president of Veryindependent Research in Holmdel, New Jersey, was incredulous. "I don't think there's enough aluminum in the world. In order to get a 12-percent growth rate in 2011, the world auto industry would have to be very strong, and each region of the world would have to be very strong."

HIGHER PRICING, DEMAND

Alcoa said income from continuing operations was $258 million, or 24 cents per share -- 21 cents per share excluding special items. That compared with a loss of $266 million, or 27 cents per share in the same quarter of 2009. Net income in the 2010 fourth quarter was 24 cents per share.

Revenue rose 4 percent to $5.7 billion, said the company which is traditionally the first Dow component to report in the quarter.