The euro was underpinned by hopes a way would be found to push through a second bailout deal for Greece, though poor results from some top European firms on Tuesday rekindled unease about the region's debt crisis, sending shares lower.
Greece's prime minister and the leaders of the country's main political parties are set to resume talks today on new austerity measures demanded by the EU in return for a second bailout. The deal needs to be approved by February 15 if the money is to be available in time to meet a March 20 bond redemption.
I think we are going to hear some news of an agreement. It may not be today, it may not be tomorrow, but the February 15 deadline is absolutely crucial, said Peter Westaway, chief economist, Europe, for Vanguard Asset Management.
In early European trade the euro was virtually unchanged at $1.3127, easing back from initial gains of 0.1 percent and up from the an overnight low of $1.3026 in Asia.
The euro is performing relatively well given the deadlines for Greece keep being extended. This suggests there's more risks of a move to the topside should a deal be agreed, said Adrian Schmidt, currency strategist at Lloyds Banking Group.
Bets by foreign exchange traders that the single currency will fall have been running a record levels according to data from the U.S. Commodity Futures Trading Commission, although the position were trimmed slightly in the latest week.
EARNINGS WORRIES KNOCK SHARES
European stocks, which have risen sharply on a flood of cash available to investors at the start of the new year, fell back as weak updates from the likes of Swiss bank UBS signaled the crisis will wreak further damage on the banking sector.
The FTSEurofirst 300 index of top European shares was down 0.6 percent at 1,069.00 points after opening unchanged.
Global stock markets were flat on the day having gained more than 7 percent already in 2012.
Earnings season has been fairly mixed, said Keith Bowman, equity analyst at Hargreaves Lansdown.
We still have got difficulties with the banking sector and UBS results signify those concerns. The investment banking sector is a very tough place to be at the moment.
World interest rates: http://link.reuters.com/buz26s
Euro zone in graphics http://r.reuters.com/hyb65p
The Australian dollar jumped to a six-month high of $1.0812 after the Reserve Bank of Australia (RBA) confounded expectations of a rate cut. It is one of three central banks meeting this week, all of which have been acting to support an improving global economic outlook with easier monetary policy.
In commodity markets, Brent crude futures rose above $116 to a six-month high as fresh threats from Iran to ban exports to some European states stoked supply concerns, overshadowing the impact of the Greek debt crisis which is capping the gains.
Brent's premium to U.S. oil stayed around $19 a barrel, near its highest since November, was also being boosted by a severe cold wave which has spread across Europe.
Spot gold gained half a percent, snapping two straight sessions of losses, as investors waited for the next development in Greece's debt restructuring talks.
Most precious metal markets were subdued by the split among investors over whether the wrangling over Greece would eventually be resolved or trigger contagion across other vulnerable euro zone countries.
(Additional reporting by Neal Armstrong and Atul Prakash. Editing by Patrick Graham, John Stonestreet)