Overnight trade saw a retreat in Asian markets from two-and-a-half-year highs as the dollar strengthened in response to remarks made by Federal Reserve Chair Jerome Powell that dashed hopes for significant interest rate reduction, although Middle East tensions kept risk appetite in check.

While investors expected U.S. employment statistics to provide more clarity on the pace of U.S. rate reduction, oil prices remained stable and gold traded slightly below a record high set last week.

Nikkei gained over 2% on a weaker yen following a 4.8% decline on Monday as investors took issue with monetary policy hawk Shigeru Ishiba becoming victorious in the race to become prime minister of the nation.

The euro zone's inflation data, which may lead to an interest rate reduction by the European Central Bank later this month, will be the main focus during European hours.

The report coincides with the statement made by Christine Lagarde, the president of the European Central Bank, on Monday that the bank is becoming more optimistic that inflation will reach its 2% objective and that this confidence will be reflected in its next policy action, which may involve a rate decrease.

The explosive rise that has boosted Asian markets over the last week took a break as mainland China's financial markets are closed for the remainder of the week.

A series of economic stimulus initiatives have sent battered Chinese equities skyrocketing; the blue chip CSI300 has risen 25% since the start of last week as foreign investors are ready to place bets on China once more.

A growing geopolitical tension is another concern for investors, as Israel's ground invasion of Lebanon looked to be beginning early on Tuesday.

(Sources: investing.com, reuters.com)