The dollar crawled up on Monday from a one-year low against other currencies as speculators booked profits on bets against the greenback, while the yen's surge threatened Japanese exporters and drove Tokyo shares down.
European indexes were set for a weaker start, with futures on the Dow Jones Euro Stoxx 50 down 1.2 percent in early trade.
U.S. crude oil dropped about $1 a barrel to near $68 and gold prices dipped on the dollar's slight gains, even as investors remained nervous that the rise was only a brief respite in a deeper slide. Copper prices also retreated.
Some analysts said Washington's decision to slap duties on Chinese tire imports spooked investors, though others said there was limited impact. China condemned the move as protectionist.
The rebound in global stocks has prompted many portfolio managers to pull funds out of safe-haven dollar funds and shift it into equities, while the surge in gold has revived worries of consumer price inflation as a result of the Federal Reserve's ultra-loose policy.
Japan's Nikkei average shed 2.3 percent as investors are fretting about how the yen's surge against the dollar will hurt exporters still reeling from the currency's record surge last year. A rising yen erodes the value of the earnings exporters make abroad.
Japan will be hit by the stronger yen, said Masayoshi Yano, senior market analyst at Meiwa Securities in Tokyo.
Japanese exporters are likely to feel the pain of a stronger yen at levels below 95 to the dollar. The 95 level was roughly the average rate seen by large exporters in the Bank of Japan's last quarterly tankan survey for the business year to March.
Among exporters, computer and mobile phone maker NEC <6723.T> slumped 2.9 percent and was one of the biggest decliners in the Nikkei. Back in July, NEC said it has assumed a dollar rate of 90 yen for the current business year.
Bucking the trend, shares of Japan Airlines <9205.T> jumped 8 percent after sources said both American Airlines
Asian shares fell but fared better, with the MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> down 1.5 percent. On Friday the U.S. S&P 500 <.SPX> dipped just 0.1 percent, but S&P futures were pointing to a bigger drop at the opening bell later in the day.
Chinese shares <.SSEC> rose nearly 1 percent as investors that missed out on the listing of Metallurgical Corp of China put funds into the market, helping offset a drop in tire makers. GITI Tire <600182.SS>, China's largest tiremaker, shed 5 percent.
The dollar index, a gauge of its performance against six major currencies, rose 0.4 percent to 76.919 <.DXY>. Last week the dollar index tumbled 1.9 percent last week, the biggest weekly drop since May, and hit a one-year low of 76.457.
Because of the sharp drop in the past few weeks, some traders said the dollar was due for a short-term bounce.
A rise in the dollar is nothing more than a technical rebound, and the greenback's downtrend is unchanged, said Hideki Hayashi, global economist at Mizuho Securities in Tokyo.
Data from the International Monetary Market on Friday showed speculators held a net dollar short position of $17.91 billion as of September 8, the biggest since mid-July 2008 when the dollar hit a record low against the euro.
The dollar edged up 0.1 percent against the yen to 90.56 yen after having slid as far as 90.18 yen on trading platform EBS in early trade, a seven-month low.
Some market players were buying the dollar to protect option positions near 90 yen, traders sad, but on the charts the dollar was looking more likely to test the 14-year low of 87.10 yen touched in January.
The euro was down 0.4 percent at $1.4533 and coming under pressure after having trouble pushing above $1.46 in the past few days.
Higher-yielding currencies were harder hit. The Australian dollar dropped 0.8 percent to $0.8575 and the New Zealand dollar lost 1.4 percent to $0.6980, both retreating from one-year peaks.
New Zealand retail sales posted a surprise fall in July, reinforcing investor expectations that the central bank will keep rates on hold for a while longer.
Government bonds pushed higher on the drop in stocks, but gains were limited. The benchmark 10-year Japanese government bond yield dipped a basis point to 1.290 percent, back near a two-month low.
(Additional reporting by Elaine Lies and Satomi Noguchi in Tokyo; Editing by Jan Dahinten)