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The benchmark U.S. Treasury yield hit a six-month high in response to the best consumer sentiment read-out in six months, helping shore up the dollar.
MSCI's index for Asia Pacific stocks was last up 0.28 percent, while the index excluding Japan .MIAPJ0000PUS put on 0.11 percent, having earlier approached one-week highs.
Financial bookmakers expected similar modest gains in Europe, calling Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC-40 .FCHI to rise 0.3-0.4 percent. Eurostoxx 50 Futures were up 0.4 percent.
Chinese leaders said on Sunday they would ratchet up efforts to quell inflation in 2011 in response to data showing the country's rate of inflation soared past forecasts to a 28-month high of 5.1 percent in November.
Ahead of the data, the Chinese central bank raised the minimum amount of money lenders must keep in reserve for a third time in a month. Beijing, however, held back from lifting interest rates, a relief for some but a move many still expect will happen at some stage.
"I don't see a high chance of an interest rate rise by the end of this year now," said Huaxi Securities analyst Cao Xuefeng in Chengdu, adding this would probably help the Chinese stocks regain ground in the short term.
Shanghai's benchmark share index .SSEC closed up 2.9 percent, its biggest one-day percentage gain in two months.
The dollar edged up 0.24 percent versus a basket of major currencies .DXY. Against the yen, it rose to 84.16, not far from a two-month high around 84.40 set recently.
The greenback was underpinned by gains in U.S. Treasury yields, which saw the 10-year reach highs of 3.391 percent last seen in June.
Markets were heartened by U.S. data on Friday which showed consumer sentiment was its best six months, and a 3.2 percent increase in exports, figures that pointed to a firmer economic recovery, though trading was subdued as year-end holidays approached.
"On the whole, the market is winding down and people are not inspired to put in large positions," said Carey Wong, an investment analyst at OCBC Investment Research.
So far this year, Asia Pacific stocks .MIAP00000PUS are up around 10 percent, outperforming an 8 percent rise in global equities .MIWD00000PUS.
Among the best performing assets are commodities. Industrial metal copper, which hit a record high of $9,129.50 a ton on Monday, has gained 23 percent this year, and U.S. crude oil at around $88 a barrel has risen 11 percent since the start of 2010.
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Hong Kong's Hang Seng index .HSI, Australia's S&P 200 index .AXJO and Japan's Nikkei average .N225 were all up between 0.2 and 0.6 percent.