Oil prices, which had surged on hopes for a US-China trade deal, pulled back on Monday.
The dollar strengthened and global stock markets rallied on Monday on signs the United States and China are nearing the end of a damaging trade war as well as indications the world economy may dodge a recession.
US and European government bond yields climbed, lifted by trade optimism and more upbeat economic data, but China's push to remove more USA tariffs imposed in September as part of a "phase one" trade deal raised doubts and spurred profit taking. Beijing and Washington spoke of progress in the talks and U.S. Commerce Secretary Wilbur Ross said licenses for U.S. companies to sell components to China's telecoms giant Huawei will come "very shortly". "And with the flood gates open for monetary policy, assets are just flying, especially equities".
However, a survey showed private sector activity shrank for the sixth consecutive month in October as output and new orders continued to slide amid poor operating conditions, partly linked to recent nationwide power cuts.
Bonds are losing some of their appeal and the yield on benchmark 10-year notes rose back to 1.799% US10YT=RR compared to last week's low of 1.670%.
In Europe, 10-year yields on safe-haven German Bunds also climbed to their highest since July.
In Asia, optimism was helped by the People's Bank of China's cut in its medium-term lending rate, the first since early 2016.More news: Apple Puts 5G iPhone Plan in Motion
Taiwanese shares gained 0.75% to near three-decade highs and Japan's Nikkei rose 1.75% to a one-year peak after a market holiday on Monday.
The MSCI world equity index, which tracks shares in 47 countries, climbed 0.3 percent to its highest since February 2018, with major European indexes following Asia upwards.
"As much as the US-China trade updates continue to point to a Phase 1 deal looking like a certainty, the contentious issues on whether the US will cancel the planned December tariffs and remove some of the current tariffs in line with China's demands remains an unknown and if the issue is not resolved then a deal could easily collapse", they said.
Emerging market stocks hit a six-month high on Tuesday on hopes the United States and China could hammer out a partial trade deal, while the yuan broke past the key 7-per-dollar mark for the first time since early August.
US and European government bond yields climbed, lifted by trade optimism and more upbeat economic data.
The next focus on the U.S. economic front is a USA non-manufacturing survey due later on Tuesday, with economists expecting a rebound in business sentiment from a three-year low.
Saxo Bank's Garnry said a better-than-expected reading could fire markets higher again.More news: Australia's central bank keeps interest rate on hold at 0.75 pct
The euro was last flat at $1.1161, close to the $1.1180 high reached last month.
In the currency market, the dollar gained 0.2% on the yen to 108.80, extending its recovery from the 107.89 touched on Friday.
The Australian dollar traded at $0.68915, staying near one-week low after a dire set of retail sales numbers released on Monday suggested the economy was still struggling despite three cuts in interest rates.
The optimistic tone reached currency markets, too, with the Chinese yuan rising to a 12-week high versus the dollar.
Commodities also responded appropriately to the trade deal optimism, with gold futures dipping 0.13 percent to $1,509.10 per ounce as traders dumped the safe-haven asset in favor of riskier assets.
Brent crude futures for January delivery settled 83 cents higher at $62.96 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 69 cents to settle at $57.23 a barrel.More news: Japan Urges India to Reconsider Decision to Quit China-Backed RCEP