Asian shares and the euro paused from the previous day's rally on Tuesday, as investors cautiously wait for European policy makers to outline details of how they will leverage their bailout fund so it can help Italy or Spain should they need aid.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was steady, after jumping more than 2 percent on Monday, while Japan's Nikkei <.N225> was up 1 percent, moving further away from two-and-a-half year lows hit last week. <.T>
Reaction was muted to Fitch revising to negative the outlook on the United States' AAA credit rating on doubts over the country's ability to fix its finances, as such a move came as no surprise after a rating cut in the summer by Standard & Poor's.
Fitch analyst David Riley told Reuters late on Monday that there was little chance of a material adverse shock occurring in the United States next year that would lead to a rating cut.
In an effort to seek a swift solution to the euro zone debt crisis, Germany and France stepped up a drive on Monday for coercive powers to reject euro zone members' budgets that breach EU rules, while the United States again urged decisive action.
Euro zone finance ministers will meet later on Tuesday with detailed operational rules for the region's bailout fund, the European Financial Stability Facility (EFSF), ready for approval, paving the way for the 440 billion euro facility to draw cash from investors.
With a history of initiatives that fall short of market expectations, however, analysts at Barclays Capital warned it would be premature to be confident that Europe's leaders are close to a solution to the 2-year-old debt crisis.
So far, European summits have delivered compromise solutions that have been deemed either less than credible or too complex by markets, they said in a note.
The recent round of proposals does not seem any different and suggests that investors should exercise caution buying risky assets, especially after a rally that has been aided by light market positioning.
The euro stood at $1.3286 on Tuesday, having risen more than 1 percent on Monday to a high of $1.3398. The dollar index <.DXY> measured against six key currencies, rose 0.1 percent.
The MSCI world equity index <.MIWD00000PUS> jumped 3.1 percent on Monday while U.S. stocks snapped a seven-session losing streak, with the Dow Jones industrial average <.DJI> up 2.6 percent and the Standard & Poor's 500 Index <.SPX> up 2.9 percent. A robust retail performance over the long Thanksgiving weekend also buoyed sentiment.
Germany and France are reportedly working on proposals for a more rapid fiscal integration in Europe ahead of a European Union summit on December 9, while the European Central Bank has defied calls for a stepped-up role in helping resolve fiscal problems within the 17-member euro zone.
The Organisation for Economic Cooperation and Development (OECD) said on Monday the ECB should cut interest rates and abandon its reluctance to buy more euro zone government bonds to restore confidence in the region, and forecast in its economic outlook that euro zone economic growth will slow to 0.2 percent in 2012 from an estimated 1.6 percent in 2011.
Concerns about the ability of the highly-indebted euro zone countries to pay off their ballooning public debt have made their sovereign debt markets a prime target for market attacks, pushing yields to levels widely seen as unsustainable.
Market players were closely watching the outcome of this week's auctions, with up to nearly 19 billion euros in new bonds
expected to be issued by Belgium, Italy, Spain and France.
Tension in euro zone money market and banks' reluctance to lend to each other further intensified on Monday, with three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, rising to 1.477 percent from 1.475 percent.
(Editing by Alex Richardson)