UPDATE: Asian Shares Mixed; China Stock Markets Choppy

SINGAPORE -- Asian stock markets were mostly higher on Wednesday, supported gains on China's stock markets. In Japan, NEC Electronics was boosted by a report on upcoming financial aid to smooth its merger plans.

Still, investors remained cautious and were keeping a wary eye on the gyrations in China's stock markets, after a sharp drop in Shanghai stocks on Tuesday dragged regional markets lower.

Japan's Nikkei was up 0.6%, Australia's S&P/ASX 20 was up 0.9%, while South Korea's Kospi Composite gained 0.2% and Hong Kong's Hang Seng Index inched up 0.2%. DJIA futures were seven points lower in screen trade.

Trade in Chinese stock markets was very choppy. The Shanghai Composite opened 0.9% lower but was last up 1.5%, led by bargain hunting in equipment makers and renewable energy companies.

"Investors are buying because the market was oversold yesterday and half-year earnings for many companies were decent, but whether the rally will be sustainable is still hard to say," said Chen Huiqin at Huatai Securities.

Changsha Zoomlion Heavy Industry Science & Technology Development was up 6.1%, Air China rose 6.3% while Chongqing Changan Automobile gained 6.9%.

Despite the caution surrounding China's volatile stock markets, analysts were optimistic stock markets' overall uptrend was still alive.

"We believe the re-rating has only just started in world equities and there is still quite a way to go for the full extent of the expected recovery to be priced in," said DBS regional equity strategist Joanne Goh; "the potential for global markets to re-rate in line with a sharp recovery in GDP growth over the next six to 12 months should keep the global equities market uptrend intact."

Signs of that recovery were seen in solid readings for U.S. home prices and consumer confidence on Tuesday, which helped drive U.S. stocks to new closing highs for the year. The Dow Jones Industrial Average and the Nasdaq Composite index both gained 0.3%.

In Australia, port and rail operator Asciano Group was down 2.0% after it said that conditions in the first half of this fiscal year were expected to remain difficult, after posting a 3.2% rise in fiscal 2009 earnings.

Crown was up 6.0% ahead of its full year results on Thursday.

"There's very good support for the (Australian) market," said UBS head of institutional sales, George Kanaan. "There's been good buying in the banks and company results seem to be OK."

In Japan, NEC Electronics was up 11.4% after the Nikkei reported that Hitachi, Mitsubishi Electric and NEC Corp. are in talks to infuse a total of about Y200 billion into Renesas and NEC Electronics to help smooth the way toward a merger. Investors were piling into the stock though NEC Electronics and Renesas earlier on Wednesday said that their merger agreement would be delayed by one month until the end of September.

Toyota was 1.5% higher, despite saying that it will halt a production line at a plant in Japan from next year due to sluggish auto demand. Other exporters were also up with Honda Motor gaining 1.0% and Toshiba 1.7% higher.

In Korea, Daewoo International was up 3.9% in heavy trade, partly on its decision to spend KRW2.096 trillion to build gas production facilities and pipelines in Myanmar.

Korean Air Co. was up 2.2% after it said Tuesday that it would raise its domestic business class fare from September 15, the first hike in five years.

Taiwan's Taiex index was down 1.8% as jitters about the spread of the H1N1 flu virus hit tourism and airline stocks. About 400 people were reported to have become sick with suspected swine flu in a southern Taiwan village hit by Typhoon Morakot earlier this month.

Formosa International Hotels was down 6.2%, Ambassador Hotel lost 4.9% and China Airlines fell 3.0%.

In Singapore, the Straits Times Index was down 0.1%, New Zealand's NZX-50 was up 0.5% while Manila's benchmark stock index was up 0.7%. In Malaysia, the headline index was down 0.2% and Indonesia's was flat.

Major foreign exchange pairs traded in tight ranges, though the yen was weakened a little by the rise in Chinese shares. Traders also remained cautious because the euro and the U.S. dollar failed to sustain their gains against the yen in New York trade Tuesday even though Wall Street stocks rose.

The euro was at Y134.53 from Y134.44 in late New York trade Tuesday, and at $1.4299 from $1.4293. The dollar was at Y94.08 from Y94.06.

Hideaki Inoue, a senior foreign exchange dealer at Mitsubishi UFJ Trust and Banking, said "toward the end of the month there's a tendency for real-money demand to push up the dollar, so we could see that toward Friday, though I think for today and tomorrow, we're still looking at cautious trade that will favor slightly more yen strength."

The October Nymex crude oil futures contract was down 15 cents at $71.90 per barrel. Citigroup analyst Tim Evans noted that both OPEC and non-OPEC production have been "inching higher" as demand remained weak. "I continue to see risk that we hit an air pocket similar to the one we hit in the first two weeks of July when the market dropped $15 a barrel in nine sessions," said Evans.

LME copper was off its early low of $6,240 per ton and was last up $30 from the London kerb at $6,340 per ton, while LME aluminum was $10 higher at $1,910 per ton, reacting to the more-positive tone for Shanghai stocks.

Spot gold was at $947.05 per troy ounce, up $2.15 cents from the New York close.