By Ambar Warrick

Investing.com-- Asian stocks surged on Tuesday amid hopes that a weakening U.S. economy would push the Fed into reducing its hawkish tone, while the partial withdrawal of the UK's contentious tax plan also aided sentiment.

Japan’s Nikkei 225 index jumped 2.8%, while the Taiwan Weighted Index and South Korea’s KOSPI rose over 2% each. Yield-sensitive technology stocks marked strong gains.

Australia’s ASX 200 index was the best performer for the day, rallying nearly 4% after the Reserve Bank hiked rates by less than expected. The bank signaled that while it will keep raising rates, it will also attempt to strike a balance between tightening policy and ensuring that economic growth remains steady.

The Australian dollar also plummeted after the RBA’s move, benefiting export-heavy industries such as mining and consumer goods. Australian bank stocks also rose on the prospect of higher interest rates on lending.

Trading volumes in Asia were thinned by a week-long holiday in China and Hong Kong. But markets took a positive cue from Wall Street, which rallied strongly overnight.

Weak U.S. manufacturing and construction data drove up hopes that the Fed will taper its pace of interest rate hikes sooner than signaled. But a slew of Fed officials have indicated that the central bank intends to risk economic pain in its fight against inflation.

Still, the dollar retreated for a fourth session, while 10-year Treasury yields also fell from a 12-year peak, easing pressure on risk-driven assets.

Sentiment was also boosted after the UK withdrew some parts of a controversial tax plan, which had raised widespread concerns over Britain's fiscal health. The pound also recovered further from a record low hit last month.

But while Asian stocks recovered on Tuesday, they were still trading near annual lows, as fears of a hawkish Fed and weakening economic growth weighed heavily this year.

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