Asia stocks gain ahead of Fed, pound pressured by fresh Brexit pain

Asian stocks gained on Tuesday as equity investors prepared for an expected US interest rate cut this week while the pound retreated to a 28-month low as heightened concerns about a no-deal Brexit gripped currency markets.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.35 percent. The Shanghai Composite Index rose 0.7 percent.

Australian stocks climbed as much as 0.7 percent to touch a record high, supported by buoyant mining shares and adding to the previous day's tech-driven gains.

Japan's Nikkei was up 0.7 percent, showing little reaction after the Bank of Japan left monetary policy unchanged as expected on Tuesday.

The US Federal Reserve begins a two-day policy meeting later on Tuesday, at which it is widely expected to lower interest rates by 25 basis points. If implemented, it would be the central bank's first rate cut in a decade.

"Up until now, many market participants had been on the sidelines while the markets factored in the likelihood of the Fed's rate cut," said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities, regarding gains by Asian stocks.

"But with the Fed decision looming close some participants appear to be shaking off the caution and buying."

Also drawing some attention were US-China trade negotiations due to begin in Shanghai on Tuesday, although expectations for progress during the two-day meeting are low with the markets hoping the two sides can at least detail commitments for "goodwill" gestures.

In currencies, the pound extended an overnight slump and fell to $1.2164, its lowest level since March 2017.

Sterling has already lost 1.7 percent this week as investors scrambled to price in the possibility that a last-minute agreement to avert a no-deal Brexit may not be realized under British Prime Minister Boris Johnson, who has said the Brexit divorce was dead.

"At this point, the ball may be in the EU's court. Any signs of a compromise may take the pound higher, but expect further extension lower if that is not forthcoming," wrote strategists at OCBC Bank.

The dollar index against a basket of six major currencies was a shade higher at 98.106 and not too far from 98.165, a two-month top scaled on Monday on the back of better-than-expected US GDP data.