The euro earlier hit a lifetime low against the Swiss franc after Moody's put Spain's sovereign rating on review, raising worries about the health of some euro zone countries as the global economy slows.
Signs of a snag in the global recovery showed in weaker-than-expected manufacturing data from China, which pushed the commodity-linked Australian dollar lower on concerns that slower growth may cut demand for natural resources.
It was down to the downgrade outlook for Spain, which has forced investors to scale back positions on pro-cyclical and commodity-related currencies, said Carl Hammer, chief currency strategist at SEB in Stockholm.
Analysts said signs of a weaker global economy would continue to sting the euro in the second half of 2010 as it may make it difficult for euro zone countries to tackle fiscal problems and deal with weak banking sectors.
The euro EUR= fell to the day's low of $1.2194 in Asian trade, according to Reuters data, edging close to a two-week low around 1.2150 hit earlier in the week.
By 0805 GMT, it was at $1.2283, up roughly 0.3 percent on the day on the speculation of a positive result from the European Central Bank's tender for six-day funding later in the day.
The euro had gained on Wednesday on news that euro zone banks borrowed less than expected from the ECB at a three-month tender, cooling some speculation that European banks were desperate for funds before a 1-year funding operation expired.
But analysts remained pessimistic about the euro's prospects, given that the cost of insuring against a Spanish default on Thursday rose 10 basis points from the previous day to 270 basis points.
The rise came after Moody's, the only major ratings agency which still keeps a top rating for Spain, on Wednesday said it was reviewing the country's ratings and may lower them due to sliding growth expectations and rising fiscal challenges.
WEAK CHINA DATA
Ongoing concerns about Spain helped to push the euro EURCHF= as low as 1.3073 francs, the weakest since the single currency's launch in 1999, before it trimmed losses to trade at 1.3190 francs.
Against the yen, the euro EURJPY=R was 0.4 percent up on the day at 108.52 yen but still not far off an 8 1/2-year low of 107.30 yen hit earlier this week.
A 1.5 percent fall in European shares .FTEU3 prompted selling in higher-risk currencies including the Australian dollar AUD=D4, which fell 0.5 percent to $0.8372 and also stumbled versus the yen.
In addition to the ECB tender, investors were also focusing on the results of a Spanish offer of five-year bonds on Thursday in light of the news of a possible downgrade.
Concerns of a slowdown in the global economic recovery prompted investors to sell higher-risk assets, including stocks and commodities, after China's purchasing managers' index (PMI) fell to 52.1 in June from 53.9 in May, lower than the median forecast of 53.1. CNPMIB=ECI
The index was still above the threshold of 50 that separates expansion from contraction but the more modest rate of growth in the leading indicator stoked worries that a sharper slowdown is in store in the second half of this year.
The Chinese PMI data was the latest factor making investors reluctant to take risks, said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking in Tokyo. (Additional reporting by Tokyo Forex Team, editing by Patrick Graham)