The euro rebounded strongly on short-covering in NY session as U.S. stocks trimmed most of their losses. Earlier, the takeover of a Spanish savings bank by Spain's central bank over the weekend together with escalating tension between North and South Korea sparked massive risk aversion activities, prompting investors to flock to currencies such as the U.S. dollar and Japanese yen for safety.

The Spanish central bank seized a local savings bank CajaSur over the last weekend and this fueled fears of systemic risks in the banking system. Euro remained under broad-based selling pressure in Asia and fell to 1.2177 in European mid-day before rebounding strongly on short-covering and partly due to cross-buying in euro versus yen and the pound as eur/jpy also rebounded strongly from the lowest level since 2001 of 108.83. Euro also drew support as DJI pared most of its early losses, price rallied 292 points from its intra-day low while S&P 500 managed to end the day up by 0.04% at 1074.03. In other news, German Finance Ministry draft document showed that Germany plans to introduce a ban on naked short selling of shares that may include all stocks to stabilise financial markets. Besides, a Greek government official said the nation would launch a 3-year privatisation programme in which state assets would be sold to raise at least 3 billion euros by 2013.

Earlier, a report showed that N. Korea had been mobilising its forces, suggesting the recent tension between North and South Korea had been escalating. Another report showed that N. Korean leader Kim had told his troops to get ready for combat if under attack and this sparked risk aversion and drove investors to buy the Japanese yen. The usd/jpy pair remained under pressure throughout Asia and fell to 89.26 in European afternoon. However, the pair managed to stage a strong rebound and ended the day at 90.22.

The British pound moved in tandem with euro again on Tuesday. Cable first declined from 1.4410 and hit an intra-day low of 1.4260 in European mid-day. The pair, however, staged a strong rebound on short-covering in NY afternoon and ended the day at 1.4408.

In other news, three regional Federal Reserve banks, Richmond, St. Louis and Dallas, last month wanted to raise the discount rate which the central bank charges banks for emergency loans from 0.75% to 1.00%, as revealed by the Fed meetings released on Tuesday. Most Fed bank directors, however, favored maintaining accommodative stance given downside risks.

On economic front, U.S. consumer confidence came in at 63.3, versus economists' forecast of 59.0. U.S. home price rose by 0.3% m/m and decreased by 2.2% y/y in March. U.K. GDP for the first quarter of this year revised up to 0.3% q/q and -0.2% y/y as widely expected from expectation of 0.2% q/q and -0.3% y/y. Eurozone industrial orders rose by 5.2% m/m and 19.8% y/y in March, much higher than economists' forecast of 2.0% m/m and 14.6% y/y.

Economic data to be released on Wednesday include: Japan CSPI, Australia leading economic index, Germany Gfk index, U.S. durable goods, new homes change and new homes sale.