Asian stocks hit a two-week high, with Japan's Nikkei briefly rising more than 2 percent, as strong U.S. manufacturing data further soothed worries about the global economy.

The dollar was on the defensive, while commodities gained, helping make materials shares some of the strongest performers across the region.

European shares fell, after rising at their fastest pace in three months in the previous session. The FTSE 100 <.FTSE> opened down 0.3 percent, Germany's DAX <.GDAXI> fell 0.2 percent and France's CAC 40 <.FCHI> fell 0.5 percent.

The Institute for Supply Management said its index of U.S. factory activity rose to 56.3 in August from 55.5 in July, much higher than forecast by economists.

Coming on the heels of strong Chinese manufacturing data and stronger-than-expected growth in Australia, the numbers eased investor fears about the pace of global economic recovery and helped Wall Street to its best day in eight weeks. <.N>

But gains in Asian stocks, which were also boosted by strong tech shares, appeared capped by wariness about whether the global economy is truly on the path to recovery, as well as concern about closely watched U.S. non-farm payrolls data on Friday.

You're getting a lot of quick, knee-jerk reactions in both directions, up and down. These disparate pieces of economic data are being reacted to but the information is by no means clear, said Angus Gluskie, portfolio manager at White Funds Management in Australia.

We've got the potential for markets to pick up strongly into the end of the year, but we may well have to go through a few nervous weeks in September first.

The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> pared gains to 0.7 percent after earlier rising to its highest level since mid-August.

Japan's benchmark Nikkei <.N225> rose more than 2 percent at one point, moving further away from a 16-month low hit on Wednesday, helped by what some market players said was buying by domestic institutional investors at lows and buying of futures by foreign players.

But the Nikkei pared gains to 1.5 percent. It lost 7.5 percent in August and is down roughly 14 percent on the year.

Seoul shares <.KS11> rose 0.6 percent, led by tech stocks, with market players saying foreign investors, cheered by the rise on Wall Street, could turn strong buyers.

Australian stocks <.AXJO> climbed 0.8 percent to a three-week high, with miners such as Rio Tinto gaining after copper prices rose to a four-month high.

DEFENSIVE DOLLAR

The dollar retained most of the losses sustained the previous day, when upbeat data helped lure investors away from safe-haven currencies and assets.

The dollar index, a gauge of the greenback's performance against a basket of six major currencies, was steady on the day at 82.565 <.DXY> after falling 0.9 percent on Wednesday, marking its biggest one-day fall in six weeks.

The greenback edged down 0.3 percent to 84.17 yen but still stayed above a 15-year low of 83.58 yen hit last week.

Though the ISM data boosted higher-yielding currencies such as the Australian dollar, investors have now turned hesitant about taking fresh positions ahead of the European Central Bank's policy meeting later in the day and Friday's closely watched monthly U.S. job report.

Investors are not aggressively taking risks yet, feeling they need to see the U.S. employment figures before deciding how much risk they can really take, said Shuichi Kanehira, head of FX spot trading at Mizuho Corporate Bank.

Traders said more players have started to wonder if Japanese authorities might intervene in the currency market to rein in the yen's strength even before it passes its all-time high against the dollar.

This view was reinforced later on Thursday after Japanese prime ministerial candidate Ichiro Ozawa said that action was needed to stop rapid rises in the yen.

But gold turned lower after hitting $1,254.65 on Wednesday, its highest since June 28, as investors sought out riskier assets instead of bullion.

Oil dipped as well in later trade as investors turned their attention to the jobs data, after rising 2.8 percent the day before on the strong manufacturing data.

U.S. crude for October delivery edged down to $73.83 a barrel at 7:15 a.m. British time after a jump of nearly $2 on Wednesday.

(Additional reporting by Miranda Maxwell in Melbourne and Rika Otsuka in Tokyo; Editing by Alex Richardson)