Thailand's benchmark stock index rose to a three-month high and the baht strengthened after the national police chief said the caretaker government may end the state of emergency amid easing political tensions.
The SET Index climbed 1.1% to 1,364.28, its highest close since Dec 11.
The advance in Thai markets reflects optimism that the nation's economy and tourism may recover from street protests in Bangkok during the past four months, according to KGI Securities (Thailand).
''Removal of the emergency decree will significantly help the overall economy, especially the tourism sector,'' Rakpong Chaisuparakul, an investment strategist at KGI, said by phone. ''It provides a positive catalyst for investors to buy domestic stocks even as the political deadlock is still unresolved.''
The government may lift the state of emergency before its expiration on March 23 because of an improving political situation, national police chief Pol Gen Adul Sanegsingkaew said on Monday.
Stocks gained even after Morgan Stanley cut its rating on Thailand to underweight from equalweight, citing decelerating economic growth and prolonged political instability. Global funds bought a net US$168 million of Thai equities this month through Monday and poured $552 million into bonds.
The Bank of Thailand may cut borrowing costs at a policy meeting on Wednesday. The central bank will probably lower its benchmark interest rate to 2% from 2.25%, according to 16 of 26 economists in a Bloomberg survey. The rest forecast no change.
Asia's markets also rose on Tuesday following big losses in the previous session but investors were largely unmoved by the Bank of Japan's decision to stand pat on its stimulus programme.
The gains came despite a negative lead from Wall Street, while the dollar and euro edged up slightly against the yen.
Tokyo added 0.69%, or 103.97 points, to 15,224.11. Hong Kong was almost unchanged, edging up 4.68 points to 22,269.61.
Singapore closed up 0.09%, or 2.77 points, at 3,129.40. Kuala Lumpur's main stock index gained 0.36%, or 6.49 points, to 1,828.55.
Jakarta ended up 0.58%, or 26.97 points, at 4,704.21. Manila added 0.65%, or 42.35 points, to 6,529.58.
Global markets suffered a sell-off on Monday in response to a shock trade deficit in China that raised fears about the world's number two economy while Japan revised down its growth for 2013.
Investors had been waiting for the BoJ's two-day meeting to end expecting it to hold steady on monetary policy but hoping it would give some idea of its plans for the scheme.
The bank said it would keep its powder dry for now, adding the economy was picking up, despite slowing growth in the last quarter of 2013 and fears that a sales tax hike due next month will dent the recovery.
"The Bank of Japan's decision to stay the course at today's meeting came as no surprise, but we remain convinced that further easing will be required in coming months," said Marcel Thieliant from London-based Capital Economics.