Asian stocks were on course on Tuesday for their worst quarterly performance since the end of 2008, as the tepid nature of rich world's recovery from global recession keeps investors on the defensive.
The euro was under pressure and dangerously close to a key support level, as funding concerns about the euro zone drove investors to the safe-haven of the Swiss franc and market players looked anxiously toward European debt sales this week.
Aside from buying on dips, it's possible that European and U.S. investors are buying for window dressing for the end of the first half, said Mitsuo Shimizu, deputy general manager at Cosmo Securities.
Still, the move by institutional investors to shrink their riskier asset holdings, which seems to have run its course for now, is not something that will go away very easily going forward.
U.S. stocks closed slightly lower on Monday, as gains in consumer-related stocks such as Coca Cola Co and Procter & Gamble Co were offset by losses in the energy sector.
Tokyo's Nikkei <.N225> rose 0.6 percent, but MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent.
The Nikkei has fallen nearly 13 percent in the second quarter and the MSCI AP ex-Japan is down more than 6 percent, putting both on track for their worst quarterly performance since the meltdown in the final months of 2008 following the collapse of Lehman Brothers.
World stock markets rebounded strongly in 2009, but investors are now fretting about the uncertainty of the outlook as governments -- many facing ballooning debt burdens -- start to turn off the stimulus that supported the fledgling recovery.
The euro traded around $1.2280, having lost 0.8 percent on Monday, to be just above near-term support at $1.2254, the low struck on June 25.
The euro was dragged down by losses against the Swiss franc. It was trading at 1.3360 francs, having dropped to a record low of 1.3329 in the previous session after barriers and stop loss sell orders at 1.3400 were taken out.
The pair has now lost 4 percent since June 17, when the Swiss central bank backed off from a pledge to fight excessive appreciation in the franc.
The list of negatives for the euro continues to grow. There's never any shortage of reasons to sell it, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
Traders in Asia said investors were wary of growth-linked currencies and the euro amid festering problems in the euro zone, where funding pressures re-emerged with interbank lending rates hitting their highest in almost seven months on Monday.
Banks must repay 442 billion euros ($545.5 billion) to the European Central Bank on Thursday, leaving a potential liquidity shortfall in the financial system of more than 100 billion euros.
Financial markets will closely watch debt auctions by France and Spain later this week after tepid demand for Italy's sale of 7 billion euros of government bonds on Monday kept worries about euro zone debt troubles alive.
The premium investors demand to hold 10-year Italian, French and Spanish government bonds, rather than euro zone benchmark German Bunds, all widened.
Oil was steady above $78 a barrel, as forecasts indicated Tropical Storm Alex was likely to skirt the main production region in the U.S. Gulf of Mexico.
Concerns about Europe's debt burden contributed to a rebound for gold, with spot prices for the safe-haven metal rising $2.55 to $1,238.60 an ounce.
Gold is likely to remain pretty well supported in the current quarter. Safe-haven demand for gold remains prominent, said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.