The Swiss franc gained against the euro on Thursday after officials declined to ramp up their campaign to cap its rise, while another safe haven, gold, steadied following recent sharp declines as nervousness over the euro zone debt crisis rises.
But the risk premium on benchmark Spanish government bonds fell following a well received bond auction which raised more than the government had targeted.
Spot gold fell by 3.5 percent on Wednesday to its lowest levels since September as investors increasingly take the view that measures agreed at last week's EU leaders summit did not go far enough to resolve the two-year-old debt crisis.
The fears had pushed investors toward safe haven assets like the U.S. dollar, German government bonds and the Swiss franc, raising speculation the SNB would raise the permissible exchange rate with the franc.
In the end the SNB forecast modest growth for next year and only slightly falling prices - leaving analysts divided over whether a rise in the franc cap was likely early in 2012. The franc gained about 0.8 percent after the announcement.
SPANISH RISK EASES
At Spain's debt auction the Treasury sold just over 6 billion euros of bonds, well above the top end of the 2.5-3.5 billion euro (2.1-2.9 billion pound) range announced before the sale.
The 10-year Spanish benchmark yield fell to a session low of 5.59 percent, down 15 basis points on the day in the wake of the sale.
But Michael Leister, euro zone rates strategist at WestLB in Dusseldorf, said demand for peripheral euro zone debt was being affected by the heavy supply coming, especially from Italy.
In regards to Q1 of next year in particular, Italy has so much debt to issue, a tad more that $60 billion, and we remain sceptical that the ECB (European Central Bank) can offset this, he said.
The economic gloom in the euro zone deepened after first estimates of the Purchasing Manager's Indexes in December showed a slight improvement over November but still signalled a deep economic contraction ahead.
The December survey revealed a widening contrast of performance within the euro zone. Germany is likely to have stagnated in the fourth quarter, though an encouraging return to growth was evident in December, said Chris Williamson, the chief economist for the data compiler Markit.
Elsewhere in the euro zone, however, the rate of contraction remained steep - the fastest since mid-2009, he said.
The euro was down 0.4 percent at $1.2980 after having fallen to as low as $1.2945 on Wednesday, its lowest level since January 11. The next major support for the currency will come at $1.2860, which is its lowest price this year.
Overall, the outlook for the euro remains dark, with the unravelling of the treaty last week, refusal to lend to the IMF and the overall downside risks to global growth, said Paul Robson, currency strategist at RBS Global Banking.
We expect the euro to fall to $1.26 by the end of Q1 next year.
A private sector survey out earlier indicated China's factory output will shrink again in December, adding to the headwinds facing a global economy struggling with sluggish U.S. growth and the euro zone's problems.
Despite the economic gloom European shares started slightly firmer but were expected to have a mixed day as liquidity dries up ahead of the year end.
The FTSEurofirst 300 index <.FTEU3> of top European shares was up 0.7 percent at 958.88 points after falling 2.1 percent in the previous session.
We are witnessing a touch of bargain hunting after sharp declines in the recent past. The market is lacking direction and early gains could evaporate quickly as the comments of rating agencies will remain in the background, said Keith Bowman, equity analyst at Hargreaves Lansdown.
(Additional reporting by Anirban Nag and Atul Prakash; editing by Ron Askew)