Asian stocks and the Australian dollar rose on the last day of the second quarter, as investors kept adding to bets global economic activity is rebounding, having driven Chinese shares to the highest in a year.

The U.S. dollar slipped as momentum kept dealers rolling out of trades based on safety after a 7 percent drop on the quarter, keeping commodity prices supported. Oil prices rose above $73 a barrel, to new highs for the year.

Emerging markets have been the big winner so far this year, with the MSCI emerging markets equities index <.MSCIEF> up 32 percent so far in 2009 compared to a 6 percent rise on the all-country world index.

A tremendous shift by investors out of cash and low-yielding money market instruments into riskier assets, particularly in Asia, has been driving equity valuations and currencies in the region higher.

However, the third quarter could be a time of reckoning if higher raw materials prices snuff out a nascent recovery.

Just how higher oil prices are a boon to the global economy when consumers are struggling to keep jobs and make payment on negative equity housing loans is a mystery. We are confident that threats to risk appetite and risk assets point clearly toward potential reversal, not extension of gains, said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale said in a note.

So far this year, Chinese and Indian stock markets have been the hottest in the region.

The Shanghai composite <.SSEC> was up 0.3 percent on the day to the highest since June 2008, and has risen 63 percent so far this year.

India's BSE index <.BSESN> has gained 52 percent in the first half, with most of it won after a decisive election victory by a Congress-led coalition in May.

Japan's Nikkei share average <.N225> rose 1.9 percent, with firms in the technology sector giving a boost to the index. Valuation of the Nikkei on a price-to-book basis has jumped to around 1.3 times, having spent the first quarter below a multiple of one.

That is still well below the average of the last decade of 1.9 times.

Hong Kong's Hang Seng index <.HSI> climbed 1.5 percent, helped by a 5.8 percent jump in shares of refiner Sinopec <0386.HK> after China unexpectedly lifted domestic gasoline and diesel prices to their highest ever.

Oil rose sharply to 8-month highs, though a lack of news suggested dealers were focused on quarter-end activity.

U.S. crude for August delivery rose to an eight-month high of $73.38 a barrel, but later cooled to trade at $72.09, up $1.60 on the day.

London Brent, where trading volume in the front month contract surged much higher than normal, led the rally, gaining $1.93 a barrel to $72.92.

This could be end of quarter movement, and traders are trying to push prices higher and then selling before closing their books, said Mark Pervan, senior commodity strategist with ANZ Bank.

Overnight a weakening U.S. dollar helped to prop up commodity prices and the dollar continued falling in Asian hours.

The ICE Futures U.S. dollar index fell 0.3 percent <.DXY>, locked in a downtrend since March.

The Australian dollar was one of the biggest outperforming currencies on Tuesday, up 0.6 percent to $0.8120.

Bets on further strength in the Australian dollar have become significant enough to suggest a near-term move lower, though it has not experienced a loss of momentum in its rise against the U.S. dollar to squeeze short-term investors, said strategists with Banc of America Securities-Merrill Lynch in a research note.

(Additional reporting by Fayen Wong in PERTH)

(Editing by Kazunori Takada)

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