The euro dipped on Monday and Asian stocks flipped back into the red after euro zone finance ministers delayed a final decision on extending emergency loans to debt-stricken Greece, dashing hopes for a quick solution to the political impasse.
Taking a cue from weak Asian markets, financial bookmakers expect to see the leading European benchmark indexes falling, resuming their seven-week slide as fears of a Greek default prompt investors to dump riskier assets.
Euro zone finance ministers at the weekend postponed a final decision on extending a further $17 billion in emergency loans to Greece, ratcheting up pressure on Athens to first impose harsh austerity measures.
But they added that they still expected the money, the next tranche in a bailout package extended by the European Union and the International Monetary Fund, to be paid by mid-July.
German Finance Minister Wolfgang Schaeuble told a radio station that a vote of confidence in Greece's new government on Tuesday could pave the way for a payout of the next tranche.
Even if a second bailout plan is cobbled together in time, it may only buy Athens a few more months' breathing room before it again has to face the prospect of default or a radical restructuring of it debt that would shock Europe's financial system.
The euro dipped 0.3 percent to $1.4263, edging back in the direction of a three-week low of $1.4073 hit last Thursday on trading platform EBS and taking the wind out of early gains in Asian stock markets.
Japan's Nikkei <.N225> ended little changed on the day after having risen as much as 0.7 percent earlier.
The MSCI index of shares outside Japan <.MIAPJ0000PUS> sank back into negative territory after being up as much as 0.6 percent earlier. It has fallen for eight consecutive weeks.
Losses in equities sapped demand for high-yielding currencies like the Australian dollar and the New Zealand dollar. Other risky assets also came under selling pressure.
Oil prices fell more than $1, extending last week's losses, on worries that Europe's debt crisis and a faltering U.S. economy would curb energy demand. Brent crude slid to just under $112 a barrel.
The iTraxx Asia ex-Japan investment grade bond index was around 116 basis points, nearly 10 bps wider on the month.
There's still plenty of uncertainty before investors get more sense how much further the three issues will deteriorate, said Dennes Chang, chief investment officer of Jih Sun Securities Investment Trust referring to concern over slowdowns in the United States and China and the euro zone debt problems.
In another sign of risk aversion, high-yield bond funds saw big outflows while India-focused equity funds suffered their seventh straight week of outflows, according to data from fund-tracker EPFR Global.
Elsewhere, the dollar weakened against the yen, falling toward the lower-end of the prevailing range roughly between 79.50-82.00 yen before a meeting by the Federal Reserve's policy-setting arm on June 21-22 which is unlikely to offer any support to the greenback.
Demand for perceived safe-haven assets remained strong.
Yields on ten-year U.S. Treasury notes held around 2.94 percent, well below a June peak of 3.10 percent while the Swiss franc held near a record high against the beleaguered euro.
Gold ticked higher after posting its biggest one-day gain in three weeks in the previous session while silver advanced.
(Additional reporting by Eric Burroughs and Faith Hung in TAIPEI, and Andrew Torchia in LONDON; Editing by Kim Coghill)