* MSCI AxJ gains 0.32%, close to 2-year peak
* Nikkei +1%, ASX 200 +0.7%
* Positive signs from U.S and China trade talks
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Tom Westbrook and Scott Murdoch
SINGAPORE/HONG KONG, Aug 25 (Reuters) - Asia's stock markets were mostly higher on Tuesday as investors cheered signs of progress in U.S.-China trade negotiations and following a fresh Wall Street rally.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.32% to its highest since early January and sits just a fraction below a two-year high.
Japan's Nikkei .N225 was trading 1.5% higher and banking stocks led Australia's S&P/ASX 200 .AXJO up 0.58%.
The Hang Seng Index in Hong Kong .HSI was an outlier in early trade, slipping 0.27% while the Shanghai Composite .SSEC was 0.15% firmer.
Markets worldwide were boosted when U.S. regulators on Sunday authorised the use of blood plasma from recovered COVID-19 patients as a treatment option, helping the S&P 500 .SPX 1% higher to another record close overnight.
The positive tone across Asian markets on Tuesday follows reports that top U.S and Chinese officials see progress being made in resolving concerns around the Phase 1 trade deal reached between the two countries in January. Minnett investment advisor John Milroy said equities market sentiment remained driven by elevated global liquidity levels.
"The strong rebound in markets continues to be driven by the large amounts of money governments and central banks keep throwing at the system," Milroy said.
"There is no reason to expect markets to stop anytime soon even in the face of reduced global activity levels. Investors keep looking ahead with markets trading well above historical price to earnings levels."
The U.S. Food and Drug Administration's move to allow the blood plasma treatment was hailed by President Donald Trump. Shares of AstraZeneca AZN.L also rose on a Financial Times report that the U.S. government was considering fast-tracking its experimental vaccine. seemed to overshadow a rise in coronavirus cases in Europe and the first documented case of human re-infection with COVID-19, where a man in Hong Kong caught the virus again some four months after first being infected. on Monday, top U.S. infections diseases expert Anthony Fauci also told Reuters that rushing out vaccines could undermine trials of other promising candidates. currency markets, the dollar, which has been sensitive to sentiment in equity markets edged higher, defying pressure from a gain in stocks that often leads investors to sell dollars for riskier currencies. FRX/
Investors now await a Thursday speech from Federal Reserve chairman Jerome Powell and expect he might address the future approach to inflation and allow it to run hotter than 2% to make up for years of undershooting.
The dollar also found support from an overnight rise in yields, which extended by a whisker on Tuesday as the yield on benchmark U.S. government 10-year debt US10YT=RR edged up to 0.6590%. That kept the euro EUR=EBS to $1.18 and the Aussie AUD=D3 at $0.7179 in Asian morning trade.
In commodity markets, oil clung to overnight gains after storms disrupted U.S. production. Brent crude futures LCOc1 firmed in early Asian trade to $45.21 a barrel and U.S. crude CLc1 dipped to $42.55 a barrel.
The stronger dollar held gold XAU= to $1,933 an ounce. A light data calendar in Asia has investors looking to Germany's IFO business survey due at 0800 and U.S. consumer confidence data at 1400 GMT.