Asian markets rallied on Monday with financials up on easing fears about the future of German giant Deutsche Bank after a source said it was nearing a deal to slash a multi-billion-dollar US fine.

Traders fled for cover last week, sending stocks reeling Friday, after US officials slapped the lender with a $14 billion charge over its role in the subprime mortgage crisis.

The gigantic figure fuelled fears the bank could go under and spark another global financial downturn, while Bloomberg News said several hedge funds had withdrawn their investments in the firm -- though the company said it was in a "stable financial position".

However, on Friday, a person familiar with the matter told AFP that the German bank is near an agreement to pay a much more manageable $5.4 billion to resolve the case.

"A lot of the market sentiment has improved because obviously people were worried that Deutsche Bank might be going to recreate the Lehman moment,” Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong, said referring to the US bank whose fall precipitated the financial crisis.

"The fact that actually Deutsche Bank came out and said it’s well capitalised and that it’s close to securing a deal with US Department of Justice over that fine has just given the market more confidence that we’re not going to have another breakdown in the global banking system,” he told Bloomberg News.

In Japan, the Nikkei ended 0.9 percent higher, with investors brushing off the closely watched Tankan survey showing Japanese business confidence at its lowest in three years.

- Lenders rally -

Hong Kong gained one percent in the afternoon, Sydney closed 0.8 percent higher and Jakarta put on 1.3 percent. There were also strong gains in Taipei and Manila. The advance tracked a rally on US and European markets.

Investors also welcomed the weekend release of a gauge of Chinese factory activity that indicated continued improvement in the world's number two economy.

Among the main winners were banks, with Sydney-listed Commonwealth Bank up 1.5 percent, while HSBC was up 1.7 percent in Hong Kong. Mitsubishi UFJ Financial Group added 0.4 percent in Tokyo.

Shanghai, Seoul and Kuala Lumpur were closed for public holidays.

In currency markets, the pound slid against the dollar after British Prime Minister Theresa May set a timetable to leave the European Union by 2019.

The announcement sets up Britain for years of horsetrading after June's shock referendum vote to leave the EU.

Sterling fell to $1.2918 from $1.2974 in New York late Friday, while it also eased to 1.1507 euros from 1.1543 euros.

"We’re back to the Brexit risks," Vishnu Varathan, a senior economist at Mizuho Bank in Singapore, said.

"Sterling has taken a bit of a knock first. If the concerns become wider concerns about financial market contagion we will find that the slight softening that we’ve seen in the dollar trend will be shaken off."

- Key figures at 0700 GMT -

Tokyo - Nikkei 225: UP 0.9 percent at 16,598.67 (close)

Hong Kong - Hang Seng: UP 1.0 percent at 23,537.31

Shanghai - Composite: Closed for holiday

Euro/dollar: DOWN at $1.1229 from $1.1240 late Friday

Dollar/yen: DOWN at 101.31 yen from 101.37 yen

Pound/dollar: DOWN at $1.2918 from $1.2974

Oil - West Texas Intermediate (November): DOWN 20 cents at $48.04

Oil - Brent North Sea (December): DOWN nine cents at $50.10

New York - DOW: UP 0.9 percent to 18,308.15 (close)

London - FTSE 100: DOWN 0.3 percent at 6,899.33 (close)

Source: AFP