European shares recovered further on Monday, but Wall Street looked set to open lower after news that for the first time since the leveraged buyout boom began the price on a major private equity deal had been lowered.
In the foreign exchange markets, the yen was firm, but so were some of the high-yielding currencies which traditionally gain at the Japanese currency's expense, or weaken as it prospers.
The FTSEurofirst 300 share index was up 0.3 percent at 7:52 a.m. EDT, adding to gains made last week as moves by central banks to provide the money market with liquidity settled the nerves of investors spooked by the subprime mortgage crisis in the United States.
But in a sign the crisis was continuing to reverberate in the United States, Home Depot Inc agreed to cut the price in the sale of its supply division to buyout firms by $1.8 billion.
Matt McCall, president of Penn Financial Group in Denver, Colorado, said the news suggested the credit crunch was restraining takeovers.
Possibly there are a few more deals in the future that are going to be below the initial value, he said.
Futures trading indicated that U.S. share markets would open modestly lower following Friday's gains.
A fresh read-out on the state of the U.S. housing market is due at 1400 GMT when the National Association of Realtors issues its report on existing home sales in July.
News that German state-backed bank LBBW is buying subprime victim SachsenLB and that the China Construction Bank, one of the country's top four state lenders, holds about $1 billion of the high-risk U.S. mortgages also kept the crisis in focus.
In Japan, the Nikkei average inched up 0.3 percent but bank, securities and other financial stock were lower.
Euro zone government bond prices were lower in reaction to firmer equities with the interest rate-sensitive two-year Schatz yield up 1.6 basis points at 4.085 percent.
But trading in Europe was restrained by a local holiday in Britain.
YEN FIRM, SO IS AUSSIE
The yen edged up against the dollar and euro, normally a sign that investors have become cautious and are spurning the carry trades they have been using, financing investment in high-yielding currencies through the low-yielding yen.
However on Monday, two of those high yielding currencies, the Australian and New Zealand dollars, also made gains.
The pre-requisites for the resumption of the carry trade have resumed in the last few days as volatility has come down, said Armin Mekelburg, currency strategist at Unicredit in Munich.
But he said negative news from the credit market could quickly see investors unwinding carry trades again.
It's not clear that the credit market-related turmoil is over and bad news could lead to a return to high levels of risk aversion, Mekelburg added.
The yen edged up against the dollar at 116.21 and was a quarter of a percent higher against the euro at 158.70. The Australian dollar was up 0.6 percent against its U.S. namesake.
Crude oil futures edged higher after a strong rally on Friday on U.S. refinery problems with Brent for October delivery up 12 cents at $71.21 a barrel.