The euro jumped and U.S. Treasuries dipped on Tuesday after euro zone policymakers agreed to a second bailout package for Greece in talks that went deep into the night in Brussels, but concerns that the deal is only a short-term fix kept stocks subdued.
The single currency initially jumped more than half a cent after finance ministers approved a 130-billion-euro rescue, with strict conditions, that averts an default next month by Athens.
But reaction from share and commodity markets, which had rallied in recent days on hopes of an agreement on Greece combined with an easing of monetary policy by China, was mixed. Copper rose, but Asian stocks were lower and European equity markets were expected to make little headway.
The accord will enable Athens to launch a bond swap with private investors to help reduce and restructure its vast debts, but analysts warn the deal may only delay a deeper default by a few months.
It's a relief for markets, broadly speaking, but it doesn't mean that this is the end of the line, said Thomas Lam, economist at DMG & Partners Securities in Singapore. It's a difficult process, but it's inching in the right direction.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.1 percent while Tokyo's Nikkei share average <.N225> lost around 0.2 percent.
Both indexes have started 2012 strongly, with the MSCI benchmark up 13.5 percent and the Nikkei up 12 percent year-to-date, outperforming an 8 percent rise in Wall Street's S&P 500.
The Greece bailout agreement has already been priced in by the market, said Yoshihiko Tabei, chief analyst of capital markets at Kazaka Securities in Tokyo, before the announcement.
Financial spreadbetters expected major European markets <.FTSE> <.FCHI> <.GDAXI>, which had risen on Monday in expectation of a Greek deal, to open flat.
EURO RELIEF, FOR NOW
The euro raced up 0.4 percent to as high as $1.3293, having been down around 0.3 percent before the deal, and later stood around $1.3270, up 0.2 percent on the day.
I guess the market has been expecting this but nevertheless it is a positive factor for the euro, said Takako Masai, manager of forex at Shinsei Bank, adding that the euro could spike higher if it breaks above its February 9 peak of $1.3322.
But some market participants said any relief over the bailout deal was likely to be eclipsed soon by concerns of more uphill battles for Europe to fix its economic woes.
When you look at the economic fundamentals, the dollar is in a favorable position. I think the euro is likely to fall to around $1.30, said Koji Fukaya, chief currency strategist at Credit Suisse in Tokyo.
Skeptics question whether a new Greek government will stick to a deeply unpopular austerity program after an election due in April, and believe Athens could again fall behind in implementation, prompting exasperated lenders to pull the plug once the euro zone has stronger financial firewalls in place.
The dollar index <.DXY> fell 0.5 percent in tandem with the euro's gains and U.S. Treasuries eased, pushing the yield on 10-year Treasury notes up to 2.03 percent.
In commodity markets, Brent crude futures hovered near $120 a barrel after reaching an 8-month high on Monday, partly driven by Iran's cutting off of oil exports to Britain and France.
Copper, which had risen on Monday on expectations of more lending for infrastructure projects in China after the central bank's weekend move to loosen monetary policy, gained another 1.1 percent to around $8,325 a tonne.
Gold struggled for direction, edging up 0.1 percent to around $1,735 an ounce.
Gold may remain in a consolidation phase in the near term, said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.
The supportive factors -- euro zone debt crisis and expectation on loosening monetary policies around the world -- have been around for a while and gold needs something new to break the range.
(Additional reporting by Dominic Lau, Mari Saito and Hideyuki Sano in Tokyo and Manolo Serapio Jr and Rujun Shen in Singapore; Editing by Richard Borsuk)