The euro struggled to hold on to gains on Monday as investors sold into its latest bounce, while Asian stocks recouped ground from last week's eight-month lows on fears the euro zone debt crisis will hit world economic growth.
Market volatility remained high following the euro's decline to a four-year low last week and investors further cut risk in their books to wait for things to calm down, traders said.
Today's (share) gains were merely a technical rebound as the slides last week were too much, too fast, said Eddy Chen, a manager at the fund business at Taiwan's First Financial.
Losses in the Australian dollar deepened after Rio Tinto said a mining tax had damaged Australia's investment reputation. The currency bounced back from its lows as stocks in China, with which Australia has close trade ties, rose 3 percent.
European stocks were expected to rise after last week's sharp selloff. By 0640 GMT, futures for the STOXX Europe 50 traded around 1 percent higher. Germany's DAX futures were half a percent higher, while those for France's CAC were around 0.6 percent up.
The MSCI index of Asia-Pacific shares outside of Japan <.MIAPJ0000PUS> rose 1.4 percent after a weaker start, moving up from the lowest level since September 2009.
The Shanghai Composite Index <.SSEC> gained 3.6 percent, buoyed by a surge in property shares after a media report quoted a government official as saying a new property tax recently under discussion would not come within the next three years.
Investors sold Japanese exporters' shares to pull the benchmark Nikkei average <.N225> down to its lowest level in more than five months, taking the view that a strong yen undermines future profits. The Nikkei later came off lows and closed almost flat.
The Nikkei fell 6.5 percent last week, its worst weekly drop in more than a year.
EURO ZONE WOES
The euro fell to around $1.2500 in Asian trade from around $1.2570 in late New York dealings on Friday. The currency had posted its first weekly gain against the dollar in six weeks last week as investors bought it after a long slide.
Dealers said the health of the Europe's banks weighed on the euro. At the weekend, the Bank of Spain said it was taking over the running of savings bank CajaSur after its planned merger with another small Spanish lender failed.
The currency market focus is still the euro zone's fiscal trouble, but wariness about its impact on the global economy seems to be spreading, making investors increasingly risk averse, said Jun Kato, senior manager for investment at Shinkin Asset Management.
The Australian dollar fell as investors, fearful of slower world economic growth, unwound carry trades funded in the euro.
The euro rebounded sharply against the high-yielding Aussie last week, hitting three-month highs of A$1.5456, on the back of a huge sell-off by hedge funds.
On Monday, the pair was trading at A$1.5090, around the same as late levels in New York on Friday. The Australian dollar fell 0.4 percent against the yen to 74.72 yen.
The Aussie dollar extended its broad slide after Rio Tinto said it is reviewing all capital spending plans in light of the government's proposed resource super profits tax.
Australian stocks rose, buoyed by bargain hunters picking up banks and miners, following a slight recovery on Wall Street. The benchmark S&P/ASX 200 index <.AXJO> gained 2.1 percent to 4,395.4, off 10-month lows hit on Friday.
COMMODITIES HIGHER, CAUTION REMAINS
Oil prices snapped three straight sessions of decline and rose above $70 a barrel. Analysts said sentiment was fragile and prices could be again be hit by pessimism on the economy.
Oil at $65 per barrel is still reasonable for all producers, but a price below that will be a disadvantage, the chief executive of Saudi Basic Industries said on Sunday.
Shanghai copper rose more than 2 percent, tracking gains in London copper the previous session, as traders expect the market to stabilize this week in the absence of further bad news from the euro zone.
Gold edged higher after falling for five straight sessions, with investors attracted by the precious metal in the face of remaining uncertainty over the global economy.
Ten-year Treasuries edged up around 4/32 in price to yield 3.222 percent, down roughly 2 basis points from late U.S. trading on Friday. The 10-year yield has slid more than 40 basis points so far in May, and is on track for its biggest one-month decline since December 2008. (Additional reporting by Faith Hung in TAIPEI and Kaori Kaneko in TOKYO; Editing by Jan Dahinten)