The euro's rally against the dollar faltered on Friday and stocks opened weaker ahead of U.S. fourth-quarter GDP numbers on profit taking, although both look set to end the week in the black.
The euro was down 0.3 percent verses the dollar by 3:46 a.m. ET, also giving back some of its gains against the yen following Thursday's sell-off after Standard & Poors cut Japan's sovereign credit rating.
More broadly, however, the single currency remains supported by the European Central Bank's hawkish tone on interest rates, Tom Levinson, currency strategist at ING, said, with markets pricing in more than one 25 basis point hike by year-end.
Barring a nasty return of sovereign-debt related concern (still likely at some point), the likelihood of the ECB leading the Fed by some distance in its tightening cycle suggests EUR/USD can rise further, he added.
Elsewhere, the dollar gained slightly against a basket of major currencies <.DXY>, up 0.2 percent.
Stocks also opened lower in Europe and by 3:46 a.m. ET, the benchmark FTSEurofirst 300 index <.FTEU3> of leading European shares was down 0.4 percent, led by mining stocks, although it remains up 0.2 percent on the week.
We expect equity markets to move into a consolidation phase in the next couple of months, said Tammo Greetfeld, equity strategist at UniCredit.
People are waiting for the U.S. GDP figures, but it would only move the market in a big way if the figures significantly deviate from the consensus.
The weakness in European shares continued a broad-based sell-off in Asia overnight, with Japanese stocks hit by the previous day's S&P sovereign downgrade and other indices by inflation concerns.
In Asia, Japan's Nikkei average <.N225> ended down 1.1 percent, while the MSCI world equity index <.MIWD00000PUS> and Thomson Reuters global stock index <.TRXFLDGLPU> were both trading down 0.4 percent by 3:50 a.m. ET.
Emerging market stocks <.MSCIEF> fared even worse, however, down 0.7 percent.
The pace of economic recovery in the United States, efforts to stem the euro zone debt crisis and concerns about building inflationary pressures continue to guide markets across the region against the backdrop of the quarterly earnings season.
Fourth quarter U.S. GDP numbers, due out at 8:30 a.m. ET, are expected to show the world's biggest economy posted the best quarterly growth since the first quarter of last year, although unemployment is seen stubbornly high.
The data should provide direction across markets later in the session, after U.S. housing and factory data out on Thursday pointed to a steady economic recovery.
BUNDS UP, ITALY EYED
Bund futures rose in early trade, tracking U.S. Treasuries, with traders eyeing the U.S. GDP figures as well as an auction of Italian debt later in the session.
Rome plans to auction up to 6.75 billion euros of 2- and 10-year notes later on Friday, and a healthy bid would reiterate the market's willingness to accept more peripheral euro zone debt.
Italian supply and U.S. GDP are the pick of the day today, a trader said. Demand at the Italian auction should be reasonable. The market may get some concession built in but the bonds are pretty cheap in that part of the curve.
U.S. Treasuries had traded steady overnight in Asia.
Elsewhere, spot gold slumped to a four-month low as safe-haven flows waned in the face of the improving U.S. economic outlook, while benchmark crude oil traded flat.
(Editing by Toby Chopra)