Asian shares rose to a six-month high on Tuesday after Goldman Sachs' stronger-than-expected profit signaled the worst could be behind for U.S. banks, emboldening investors to chase after riskier assets.

Asian credit markets continued to improve, while the yen, a currency that benefits during fearful times, fell to a six-month low against the Australian dollar.

However, there are also plenty of doubts about how much longer the rally in Asian stock markets can be sustained given that some analysts believe the full brunt of the deep global recession has yet to be reflected.

Singapore eased monetary policy to effectively devalue its currency after posting on Tuesday its worst quarterly economic contraction ever, while a forecast for weaker demand for oil by the International Energy Agency sent crudes tumbling to below $50 a barrel.

Asian automaker shares slid on fears General Motors Corp was being pushed into bankruptcy by the U.S. government, helping send Japan's Nikkei average <.N225> down 1.3 percent.

If GM were to go bankrupt, that would raise questions about what would happen to Japanese auto-parts makers and Japanese automakers' dealer networks. The implications are broad, said Takahiko Murai, general manager of equities at Nozomi Securities.

Although the financial sector seems to have seen the worst, a recovery for manufacturers has been slow and worries remain.

The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> at one point hit its highest since mid-October, when shares were in the midst of a slide following the collapse of Lehman Brothers in the previous month.

The MSCI gauge was up 1.5 percent as of 0240 GMT, as major markets such as in Hong Kong <.HSI> and Australia <.AXJO> gained more than 2 percent each after a four-day weekend also seen in other Asian countries.

The gains came after Goldman Sachs Group Inc on Monday posted much higher-than-expected first-quarter profit as it took more trading risk, and said it plans a $5 billion common share sale to help pay back government funds.

The results followed Wells Fargo & Co's surprising announcement last week that it expects to report a record first-quarter profit.

Though Goldman and Wells Fargo did not suffer as much as other U.S. financial firms, at least their announcements were seen providing some signs the U.S. banking industry is finally stabilizing after months of credit-related losses.

Markets in South Korea <.KS11>, Taiwan <.TWII> and Shanghai <.SSEC> were largely unchanged on the day.

NOT SO FAST?

The willingness to bet on riskier assets was also reflected in currency markets, where Australian dollar rose as far as 73.49 yen, its highest since mid-October, before slipping to 73.07, down 0.1 percent from late U.S. trade.

Currencies pairs such as the Australian and the New Zealand dollars against the yen have shown a high positive correlation with U.S. share markets in recent months.

The U.S. dollar was steady at 100.09 yen, below last week's six-month high of 101.45 yen, and the euro eased 0.2 percent from late U.S. trade to 133.63 yen.

The euro also fell 0.3 percent to $1.3325, after climbing more than 1 percent in U.S. trade on Monday.

Plenty of potential pitfalls still lurk ahead, even Asian shares outside Japan have risen some 10 percent this year.

Citigroup , which had to resort to the U.S. government for financial aid during the crisis, reports earnings on Friday, as does U.S. blue chip General Electric .

The fate of U.S. auto makers also remains a concern. The New York Times reported late on Sunday that the U.S. Treasury Department was directing GM to lay the groundwork for a bankruptcy filing should it fail to reach give-back deals with stakeholders by a deadline set by the Obama administration.

That sent Asian automakers such as Japan's Toyota Motor Corp <7203.T> and South Korea's Hyundai Motor <005380.KS> tumbling on Tuesday.

Regional bond prices are also pushing lower, sending up yields, given the expectations for a raft of new supply as governments seek to pay for massive spending projects by issuing more and more debt.

Japan's benchmark 10-year yield edged up 1 basis point to 1.460 percent, hovering near a five-month high of 1.490 percent hit last week after the government announced it would issue more than 10 trillion yen of debt in the year to March 2010 to finance a $154 billion stimulus package that is its largest ever.

Japan Australia South Korea Investment