Financial stocks led the region's advance and Japan was the biggest gainer, with the Nikkei rising more than 2 per cent. The MSCI Asia Pacific index was 1.1 per cent higher at 145.26 by lunchtime in Tokyo.
The markets had made "a fragile recovery," said one trader in Singapore, on the hopes that Ambac would be get fresh capital to reinforce its credit rating. "Last week there were days when people were wondering when all the gloom would end," he said, though he added that if a rescue failed the chain reaction could "get pretty nasty."
The Nikkei 225 average was near the day's highs early in the afternoon, up 2.3 per cent at 13,813, and the broader Topix index was 1.8 per cent higher. The yen was 0.15 per cent stronger against the dollar, trading at Y107.33.
The Tokyo market was also boosted by news last week that China would allow commercial banks to buy shares directly in Japanese companies.
Mitsui Sumitomo Insurance jumped 9.4 per cent to Y1,099 and Millea (NASDAQ:MLEA) rose 7.8 per cent to Y3,990. Aioi Insurance surged 16.3 per cent to Y522 after it forecast that its annual losses would be smaller than widely expected.
Hong Kong shares were broadly higher, though the Hang Seng ended the morning off the day's highs, up just 0.2 per cent at 23,353.81. HSBC, which makes around one third of its profits in North America, rose 1.8 per cent to HK$116.70.
But mainland Chinese insurers listed in Hong Kong fell, tracking declines on the Shanghai market. Ping An slid 1.6 per cent to HK$55.80, while China Life Insurance dropped 0.5 per cent to HK$29.45.
The Shanghai Composite, down 3 per cent at midday, dropped for the fourth session in a row after China's central bank said it would "vigorously" reduce the money supply to rein in inflation currently running at an 11-year high. Banks suffered on the prospect of being required to set aside more money in reserves and thus having less cash to lend to customers.
China Merchant Bank dropped 1.4 per cent to Rmb29.93. Shanghai Pudong Development Bank, which last week said it would sell fresh shares to investors, lost 1.3 percent to Rmb39.45 .
In Australia, the S&P/ASX 200 was 0.6 per cent higher at 5,594.90 by the middle of the afternoon in Sydney. Commonwealth Bank of Australia gained 4.3 per cent to A$44.41 and National Australia Bank (NYSE:NAU), the country's biggest, rose 1 per cent to A$28.88.
BlueScope Steel was up 3.8 per cent at A$11.84 after unveiling results. First-half net profit fell 21 per cent but that was better than analysts expected.
But shares of Allco Finance slumped 61 per cent to A$1.19 after the troubled asset manager said it might have repay A$1.15bn of debt in the next three months.
In India, the Bombay Sensex index opened 0.3 per cent higher at 17,395.70.