Asian shares just shy of 2007 peak on earnings optimism

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trade, sitting just 0.4 percent below the record high touched in November 2007, having risen for six straight days since the start of new year.

Japan's Nikkei was also flat in early trade, near a 26-year high hit the day before.

Wall Street's major indexes extended the New Year rally to record levels into a sixth day, on expectations of solid corporate profit growth.

"U.S. fourth-quarter earnings are expected to rise more than 10 percent from the previous year. The market has been supported by the consensus that the goldilocks economy will continue while the Fed will raise interest rates only slowly," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Profits for S&P 500 companies are expected to rise 11.8 percent in the fourth quarter, compared with an 8-percent increase a year earlier, according to Thomson Reuters I/B/E/S.

Some investors said risk sentiment had been boosted by an apparent easing in tensions in the Korean peninsula after North and South Korea agreed to future talks in their first official dialogue in more than two years.

Washington welcomed what it said was a first step to solving the North Korean nuclear weapons crisis, even though Pyongyang said those were aimed only at the United States and not up for discussion with Seoul.

In the currency market, the yen maintained the gains it made the previous day after the Bank of Japan trimmed the amount of its buying in long-dated bonds.

While the move was in line with the BOJ's subtle reduction in its bond buying over the past year, the so-called 'stealth tapering', the reaction highlighted how sensitive markets are to a pullback in Japan's massive stimulus.

The euro eased to $1.1938, compared to $1.2028 at the end of last week, due to profit-taking following the common currency's big gains late last year.

The BOJ's move also helped to raise the 10-year U.S. bond yield above its December high to 2.555 percent, the highest level since March last year, from 2.482 percent late on Monday.

Oil prices extended gains, with U.S. crude futures hitting a three-year high on a tight supply balance due to OPEC-led production cuts and a sharper fall in U.S. crude inventories.

The American Petroleum Institute said late on Tuesday crude inventories fell by 11.2 million barrels in the week to Jan. 5 to 416.6 million, far bigger than analysts' expectations for a decrease of 3.9 million barrels.

U.S. West Texas Intermediate (WTI) crude traded at $63.38 a barrel, having risen as high as $63.53 earlier.

Brent crude ended Tuesday's session up $1.04, or 1.5 percent, at $68.82 per barrel after hitting a session high of $69.08, its highest since May 2015.

In Asia, Chinese inflation data due later in the day is a big focus.