The euro slumped to four-month lows on Wednesday as the loss of a crucial support level triggered a wave of selling from investors afraid the single currency was embarking on a sustained slump.
Shares in China and Hong Kong also fell on reports the government had told some major banks to stop lending for the rest of January, in a further attempt at keeping the surging economy from overheating.
Most other Asian stock markets were a shade firmer after Wall Street staged a late rally and results from tech giant IBM
But the early action was in currencies as the euro collapsed through a big chart bulwark at $1.4250, tripping a host of automatic sell orders and taking it a cent lower to $1.4189.
There was no particular news behind the move, said Sean Callow, a senior currency strategist at Westpac in Sydney.
It was more that people just want to be bearish on the euro now and somebody took a swing at $1.4250, forcing a load of stop-loss sales, he explained. It's not like investors are really excited about the U.S. dollar either.
The euro has been worn down in recent weeks by worries over the fiscal health of Greece and took a fresh blow on Tuesday from a disappointing survey of German investor sentiment.
Its losses came across the board, hitting a five-month low on the British pound and a nine-year trough against the Australian dollar.
That drop helped lift the U.S. dollar up against a basket of currencies to a one-week high at 77.829 <.DXY>, though it made little progress on a broadly firm yen at 91.17.
Shares in China and Hong Kong fell after sources said the authorities had instructed some major banks to stop lending for the rest of January after they went on a lending binge early in the month.
The Shanghai Composite <.SSEC> dropped 1 percent, while the benchmark Hang Seng Index <.HSI> was down 1 percent, weighed down by big Chinese banks such as Bank of Communications <3328.HK>, which fell more than 2 percent.
Asian markets have been rattled in recent weeks by China's gradual attempts to tighten policy and moderate economic growth. Chinese demand for commodities and other imported goods from its neighbors has provided a major boost to the region in the absence of a strong rebound in key Western markets.
The MSCI Asia-Pacific index excluding Japan eased 0.23 percent, even though most other markets in the region edged higher. The Thomson Reuters index of regional shares <.TRXFLDAXPU> was up around 0.25 percent.
Japan's Nikkei <.N225> added 0.5 percent, buoyed by resource shares on stronger commodity prices and gains in U.S. markets.
The gains followed a late rally on Wall Street which got a lift from signs that a U.S. Senate race could hamper the Obama administration's reform agenda.
Initial results from the race showed the Republican contender had won the seat, thus breaking the Democrat's super-majority in the Senate. That was seen benefiting U.S. insurers and pharmaceutical companies in particular if healthcare reform floundered.
The Dow Jones industrial average <.DJI> ended up 1.09 percent, while the Standard & Poor's 500 Index <.SPX> gained 1.25 percent.
Traders felt sentiment should be supported by upbeat results from IBM after the bell on Tuesday.
The tech giant raised its profit target for 2010 and reported a better-than-expected 9 percent rise in fourth quarter earnings, as cost cuts and a shift to more profitable contracts helped it weather a slump in corporate spending.
Its shares fell slightly after-hours but that looked like classic a buy on the rumors, sell on the fact pullback. They were still up nearly 60 percent over the past year and Tuesday's close had been the highest since September, 2000.
Australia's benchmark ASX index <.AXJO> rose 0.7 percent to 4,895.3, supported in part by record production figures from the country's biggest miner, BHP
BHP's shares rose 1 percent after the miner gave an upbeat outlook for commodity prices, citing insatiable demand from China.
Ironically, most commodity prices were under pressure on Wednesday from the rise in the U.S. dollar. Oil slipped 37 cents a barrel and gold slipped to $1,134.30.
Platinum broke the mold surging to a fresh 17-month high around $1,654, helped by the launch of a new U.S.-based exchange trade fund backed by the metal.
(Editing by Kim Coghill)