(Reuters) - Asian stocks rose and the euro edged off a seven-month low on Tuesday after a report that Italy may get financial support from China sparked a bout of short-covering but did nothing to ease fears that Europe is sliding into another banking crisis.

Growing expectations of a Greek debt default, sharp drops in European shares -- especially French banks due to their sovereign exposure -- and a surge in Italian bond yields meant sentiment remained fragile and any rally was likely to be short lived.

"There are still enormous challenges facing the European system at this point and fears around a default in Greece are very high and it's hard to see that changing any time soon," said Greg Gibbs, a strategist at RBS in Sydney.

The dollar eased broadly, helping lift dollar-denominated commodities such as gold, copper and crude oil.

Japan's Nikkei share average .N225 rose 1 percent and Australia's benchmark index .AXJO gained 0.9 percent, while MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS edged up 0.2 percent. .T .AX

The MSCI index is nearly 20 percent below its 2011 high reached in April. A fall of 20 percent or more is the generally accepted definition of a bear market.

U.S. stocks bounced back late in Monday's session after a report that Italy could get financial support from China tempered investors' worst fears over the euro zone debt crisis. .N

S&P 500 index futures rose 0.3 percent in Asia on Tuesday.

Market sell-offs like those of the last six weeks -- driven by the euro zone crisis and fears of renewed recession in the United States -- are often punctuated by "short-covering" rallies, when traders buy to realize profits on bets that an asset would fall in price.

EURO CRISIS

The Financial Times reported that Italy had asked China to make "significant" purchases of Italian debt. Italy has seen its borrowing costs spike in recent weeks on doubts about the political will in Rome to tackle its swollen debt.

Greece warned on Monday it would run out of cash next month without the next tranche, around 8 billion euros, of a bailout loan. Euro zone policymakers have threatened to withhold the money as patience with Athens' repeated fiscal slippages wears thin.

A growing number of policymakers, as well as market economists, are convinced it is only a matter of time before Greece, which keeps falling behind on its fiscal targets after two EU/IMF bailouts, will have to default.

"The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain and it will take in the whole of the European banking sector too," Suki Mann, a strategist at Societe Generale, wrote in a note.

In currency markets, the euro climbed to around $1.3685 against the dollar after falling to a seven-month low of $1.3495 in the previous session, though weak demand at an Italian bond auction later in the day may see the single currency fall back again.

"All eyes are squarely on that seven-month low around $1.35 hit overnight," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.

"The downtrend in the euro will surely continue, but my sense is that unless the Italian bond auction goes extremely badly, this level may hold today."

The dollar index .DXY, which tracks the U.S. currency against a basket of major peers, fell 0.7 percent.

The weaker greenback made dollar-denominated assets cheaper for holders of other currencies.

Copper rose 1 percent to $8,840 a tonne and oil also gained, with U.S. crude up 0.9 percent at $89 a barrel and Brent crude rising 0.6 percent to $112.90, although traders remained wary.

"This is a shallow bounce because of Wall Street ending higher, so there is some confidence returning, but I don't think anybody would be putting any big positions given the global situation," said Victor Say, an analyst at Informa Global Markets in Singapore.

Gold bounced about 1 percent to around $1,831 an ounce, after dropping by more than 2.5 percent in the previous session, also supported by the safe-haven appeal that drove it to a record high of $1,920.30 last week.

"There is a slow-motion train wreck going on in Europe at the moment, which is going to be relatively supportive of gold," said Nick Trevethan, senior commodities strategist at ANZ.

"All the factors that have been supporting gold for the past few months are still there. Nothing has changed."

(Reuters) - Spot gold edged higher on Wednesday, supported by worries about a worsening debt crisis in euro zone, while short-term bearish technicals are likely to cap gains.

FUNDAMENTALS

* Spot gold inched up 0.2 percent to $1,837.44 an ounce by 0026 GMT. U.S. gold rose 0.6 percent to $1,841.80.

* Technical analysis suggested that U.S. gold could move sideways in the next few weeks, while commodities as a whole may correct moderately by the end of the year, said Reuters market analyst Wang Tao.

* Fears over the euro zone's debt crisis hit new heights on Tuesday, with U.S. President Barack Obama pressing the bloc's big countries to show leadership as talk of a Greek default escalated and markets heaped pressure on Italy.

* Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, edged lower to 1,241.311 tones by September 13 from a 2-1/2-week high of 1,241.917 tones on September 9.

* Barrick Gold, the world's largest gold producer, plans to invest $550 million in Peru by 2013, the head of Barrick Misquichilca, the company's Peruvian subsidiary, said on Tuesday.

MARKET NEWS

* U.S. stocks gained on Tuesday as investors bought shares beaten down in recent weeks and bet European leaders would take action soon to ease the Greek debt crisis. .N

* The euro held onto modest gains against the greenback in Asia on Wednesday, as bears trimmed short positions just in case EU leaders surprised by making progress on Greece in a conference call later in the day.

(Reuters) - Asian stocks bounced on Thursday yet investors remained wary that obstacles which policymakers face in Europe could weigh on the euro and Asian currencies in the medium term.

The early gains in Asia, tracking the rise in global markets, came one day after the MSCI Asia ex-Japan index .MIAPJ0000PUS hit a 14-month low.

On Thursday, that index was up 1.2 percent. Japan's Nikkei markets/index?symbol=jp%21n225">.N225 was up 1.7 percent with chipmaker Elpida (6665.T) up 6.1 percent.

The euro rebounded to $1.3750, easing back from a high above $1.3800 reached after Germany and France voiced their commitment to keeping Greece in the euro zone, giving traders a chance to find better levels to short the common currency.

Optimism over tentative steps to resolve Europe's debt crisis trumped weaker-than-expected retail sales data in the U.S., helping the S&P 500 finance/markets/index?symbol=us%21spx">.SPX close up over a percent.

Some traders attributed the gains on Wall Street to short-covering ahead of inflation numbers in the U.S. with Europe still the clear focus.

European finance ministers have been warned confidentially of the danger of a renewed credit crunch as a "systemic" crisis in euro zone sovereign debt spills over to banks, according to documents obtained by Reuters on Wednesday.

The gains in Asian stocks put safe-haven bets like U.S. Treasuries and gold on the backfoot.

Spot gold steadied around the $1,820 an ounce level after having fallen nearly one percent in the previous session. It hit a lifetime high of around $1,920 an ounce last week.

Yields on ten-year U.S. notes held at 1.99 percent, not far away from its lowest levels in at least 60 years of around 1.91 percent tested last Friday.

Brent crude for October delivery settled at $112.40 a barrel on Wednesday, gaining 51 cents, snapping four days of losses while U.S. October crude held below the $89 per barrel line.

Starting Monday 19th September, Empire Global FX ECN Broker will offer both demo and live self-traders free EA and EA builder. Through partnership with Danish developers Straticator, all Empire Global FX self traders will access this service at no cost.

Enjoy our deep liquidity and speedy execution with your free EA! Build your own EA and set your preferred trading technique and profit from the markets with Empire Global FX