The euro sank against the dollar and the yen on Monday and Asian stocks fell as renewed worries about the fallout from the European sovereign debt crisis overshadowed signs of vigour in the U.S. economy.
The rising dollar dragged on commodity prices, with oil, copper and gold all falling, while mixed signals on the global economy kept Asian credit markets subdued.
Data on Friday showed that while U.S. employment growth accelerated last month, euro zone retail sales fell and economic sentiment soured at the end of 2011, pointing to recession in the currency bloc.
If we didn't have Europe, this market would be rallying on the back of the U.S. numbers, said Jamie Elgar, dealer at stockbrokers Burrell & Co in Brisbane.
European shares were expected to open lower, with financial bookmakers calling the FTSE 100 <.FTSE>, Paris's CAC-40 <.FCHI> and Frankfurt's DAX <.GDAXI> down 0.4-0.8 percent.
Worries over Europe intensified with a debt rating downgrade to junk status for Hungary -- a member of the European Union but not part of the euro zone -- and a report in German magazine Der Spiegel that the International Monetary Fund was losing confidence in Greece's ability to clean up its public finances.
The euro fell to a 16-month low below $1.2670, before steadying just above $1.27, and dropped as far as an 11-year low at 97.47 yen. The dollar, currently favoured by investors seeking a safe haven, rose as much as 0.2 percent against a basket of major currencies <.DXY>.
Rob Ryan, FX strategist for BNP Paribas in Singapore, said the single currency was unlikely to see a sustained rebound unless the euro zone's economic outlook improved, adding that the euro could fall to $1.25 in coming months.
We need to see the economic data halt its slide and I think we need to see banks start to lend to each other. Neither of those are going to happen overnight, he said.
German Chancellor Angela Merkel and French President Nicolas Sarkozy were due to meet on Monday to finalise details of a deal to increase fiscal coordination in the euro zone.
Market expectations for the meeting were not high, however, with most investors looking further forward towards debt auctions in Spain and Italy, seen as the bloc's most vulnerable big economies, on Thursday and Friday.
With markets focused on concerns about rising borrowing costs in Europe, Friday's upbeat jobs data failed to perk up U.S. stocks, and the weakness continued in Asia on Monday.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.8 percent. The index had finished the first week of 2012 slightly higher, after shedding 18 percent in 2011. Tokyo markets were closed for a holiday.
China's stocks bucked the trend, with Shanghai's main index <.SSEC> rising 1.9 percent after Premier Wen Jiabao said that Beijing would improve market regulation and protect investor rights.
S&P 500 index futures fell 0.4 percent, pointing to a weaker start later on Wall Street, where the U.S. corporate earnings season will kick off when aluminium producer Alcoa
A stronger dollar tends to weigh on commodities that are priced in the U.S. currency, and both precious and industrial metals lost ground.
Copper slipped more than 1 percent to around $7,485 a tonne, while gold fell 0.4 percent, getting close to the $1,600 an ounce level.
There is a somewhat weaker trend across the commodities, as the strength of the dollar is playing a role in limiting appetite, said Nick Trevethan, senior commodity strategist at ANZ in Singapore.
U.S. crude oil fell 0.6 percent to below $101, after climbing above $100 a barrel last week as rising tensions between Iran and the West raised fears of supply disruptions. Brent crude was steady around $113 a barrel.
(Additional reporting by Victoria Thieberger in Melbourne and Masayuki Kitano and Rujun Shen in Singapore; Editing by Kim Coghill)