Signs of improvement in the German and U.S. economies helped offset concerns over the prospects for euro zone debt auctions later this week, lifting the single currency and European shares on Monday.
The FTSEurofirst 300 <.FTEU3> index of top European shares opened up by around 0.2 percent to 1015.88. The MSCI world equity index <.MIWD00000PUS> was also up over 0.1 percent despite a weaker session on Asian markets.
German exports jumped 2.5 percent in November, data showed on Monday, unexpectedly widening the trade surplus in a sign Europe's largest economy is still outpacing peers.
The euro, which fell to a 16-month low in Asian trade of $1.2666, recovered to $1.2748 in volatile trade to stand up around 0.2 percent for the day.
Newsflow from the euro zone is not helping, particularly regarding Greece and markets are also on the defensive ahead of key event risks this week so there's not too much reason to be overweight the euro, said Geoffry Yu, currency strategist at UBS.
These are testing times for the currency and the scale of the recent decline seems to have caught some people by surprise, he added.
The market's focus is likely to be on the meeting in Berlin between the German chancellor Angela Merkel and French president Nicolas Sarkozy later in the day although expectations of any major developments are low.
There is also a busy week of government bond issues planned in Europe featuring triple-A issuers Germany, Netherlands and Austria, and capped by sales of new debt by Spain and Italy on Thursday and Friday. The debt auction are expected to total more than 21 billion euros.
EURO ZONE NEWS WORRIES
The concerns about rising borrowing costs in Europe have taken the shine off Friday's upbeat U.S. jobs data which showed the jobless rate had dropped to a near three-year low of 8.5 percent, and nonfarm payrolls increased by 200,000.
Also hurting sentiment was a report by German magazine Der Spiegel on Saturday that the International Monetary Fund was losing confidence in Greece's ability to clean up its public finances and work off its mountain of debt.
In addition, an adviser to Germany's finance minister Wolfgang Schaeuble told a Greek newspaper that a 50 percent write-down on Greek debt holdings, part of Greece's debt swap deal, was not enough to put the country's huge debt on a viable footing.
Underscoring the bearish view on the euro, currency speculators boosted short positions in the currency to record levels in the week ended January 3, data from the Commodity Futures Trading Commission showed on Friday.
Investors also remained concerned about the situation in Hungary after Fitch Ratings said late on Friday it was downgrading Hungarian sovereign debt by one notch to BB+ with a negative outlook, putting the country's bonds in the higher risk category and suggesting the investment climate was not going to get any better.
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 around 0.4 percent to $7,550 a tonne, while gold fell 0.3 percent, getting close to the $1,600 an ounce level.
U.S. payrolls: http://link.reuters.com/qyn85s
The euro zone crisis: http://r.reuters.com/xyt94s
(Editing by Toby Chopra)