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Asia-Pacific share indexes rallied on Thursday, following Wall Street's lead, and the dollar held just below a two-month high versus the yen amid signs the United States might be close to a deal to raise the debt ceiling and avert a disastrous default.

On Wednesday, President Joe Biden and top U.S. congressional Republican Kevin McCarthy underscored their determination to reach an agreement soon, pledging to negotiate directly on a deal amid estimates the Treasury could run out of money by the start of June.

"It is possible to get a deal by the end of the week," McCarthy told reporters. "It's not that difficult to get to an agreement."

As investors drew comfort from that reassurance, MSCI's broadest index of Asia-Pacific shares pushed 0.78% higher.

"Markets have chosen to be optimistic," Rodrigo Catril, senior FX strategist at National Australia Bank, wrote in a client note.

"History, of course, tells us that a deal is more likely than not to be reached on the 11th hour, suggesting there is still room for a few bad headlines," he added, noting as a case in point, "Treasury has almost run through all of its authorised extraordinary measures to keep paying the bills."

Japan's Nikkei continued to outperfrom the region, surging to a fresh 20-month peak of 30,667.13, before last trading 1.2% higher at around 30,450. Any advance above 30,795.78 would take it to the highest since 1990, when Japan's bubble economy had still to burst.

Hong Kong's Hang Seng gained 0.93%. Mainland blue chips rose 0.37%.

Australia's stock benchmark gained 0.59%, and received an additional tailwind from domestic data showing an unexpected fall in employment in April, taking some pressure off the Reserve Bank for further tightening.

The Aussie dollar suffered though, flipping from a small gain to a loss of as much as 0.44% following the jobs report.

Long-term U.S. Treasury yields eased back in Tokyo after rising to the highest since March 1 at 3.589% in New York.

And among the major currency pairs, the dollar paused for breath in a rally that took it to fresh six-week high of $1.08105 per euro overnight. Against the Japanese currency, the dollar surged the most in three weeks to 137.72 yen, just 0.06 yen below its highest since March 8.

The dollar clung close to a 5 1/2-month high above 7 yuan in offshore trading after topping the closely watched level on Wednesday.

The Chinese currency is also under pressure from a string of weak data that suggested Asia's biggest economy may have already passed the peak of its post-COVID recovery.

Gold found its feet around $1,984 per ounce after dipping to a three-week low of $1,974.30 in the previous session.

Oil eased a little after Wednesday's $2 rallies for both Brent and West Texas Intermediate (WTI) crude.

Brent crude futures slipped 24 cents to $76.72 a barrel. U.S. West Texas Intermediate crude retreated 21 cents to $72.62.