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 Asian stocks rose on Tuesday, led by Japanese shares on the back of a steady yen, with traders awaiting data including the U.S. inflation report to gauge the Federal Reserve's policy outlook after volatile moves last week.

Oil prices eased in early trading after a 3% jump in the previous session as investors kept an eye on widening conflict in the Middle East that could tighten global crude supplies. Demand for safe assets lifted gold prices. [O/R] [GOL/]

Japan's Nikkei rose more than 2% in early trading following a holiday on Monday, a welcome relief after last week's wild swings that began with a massive sell-off spurred by a rising yen and fears of a U.S. recession. [.T]

MSCI's broadest index of Asia-Pacific shares outside Japan was slightly higher at 556.19. Chinese stocks were little changed in early trading, while Hong Kong's Hang Seng Index was also flat.

"While aftershocks might reveal vulnerabilities, we continue to view recent volatility as being an equivalent of a 'heart palpitation' not a 'cardiac arrest'," Viktor Shvets, head of global desk strategy at Macquarie Capital said in a note.

"We also maintain that the nervousness about a US slowdown is overdone."

However, investor sentiment remained fragile, with the yen last at 147.16 per dollar on Monday, having touched a seven-month high of 141.675 last week, a far cry from the 38-year lows of 161.96 it was rooted to at the start of July.

A surprise hike from the Bank of Japan last month following bouts of intervention from Tokyo earlier in July wrong-footed investors and led them to bail out of popular carry trades, in which traders borrow the yen at low rates to invest in dollar-priced assets for higher returns.

Data on Friday showed that leveraged funds - typically hedge funds and various types of money managers - closed their positions in the yen at the quickest rate since March 2011.

Given the yen’s recent rally, dollar-yen is now more in sync with its yield differential, according to Karsten Junius, Chief Economist at Bank J. Safra Sarasin.

"Another wave of the yen-funded carry trade unwind will likely push the yen still somewhat higher towards year-end. Yet we do not expect USD-JPY to fall meaningfully below 140."

DATA HEAVY WEEK

Investors' focus this week will be on a slew of U.S. economic data that will help sharpen the view on the Federal Reserve's next moves, with markets now evenly split between a 25 basis points cut or 50 bps cut at the next meeting in September.

Traders are pricing in 100 bps of cuts this year.

Surprisingly soft payrolls data stoked U.S. recession worries that kicked off the market meltdown at the start of last week, but by the end of the week strong U.S. data helped allay fears of a global slowdown, and stocks recovered.

Markets could move later in the day when U.S. producer price data for July is due, as the figures feed through to the core personal consumption (PCE) measure favoured by the Fed.

Any hints from the PPI of soft inflationary pressures could cause financial markets to double down on wagers the Fed will sharply cut rates this year, which would weigh on the dollar, said Kristina Clifton, a senior economist at Commonwealth Bank of Australia. 

On Wednesday, U.S. consumer price index data for July is due and is expected to show that month-on-month inflation ticked up to 0.2%. Retail sales data is scheduled for Thursday.

The dollar index, which measures the U.S. currency against six rivals, was 0.1% higher at 103.18. The euro was steady at $1.092975, while sterling was little changed at $1.27665.

In commodities, Brent crude futures eased 0.56% to $81.84 a barrel, while U.S. West Texas Intermediate crude futures slipped to $79.61 a barrel, down 0.55% in early trading. Brent had gained more than 3% on Monday, while U.S. crude futures had risen more than 4%. [O/R]