Global share markets were becalmed on Tuesday and the dollar struggled after Federal Reserve Chairman Ben Bernanke gave a cautious assessment of the world's biggest economy, driving investors toward government debt.
European Central Bank President Jean-Claude Trichet was similarly cautious, saying the euro zone economy faced a bumpy road to recovery and the prospect of modest growth ahead.
Bernanke dampened speculation of an early U.S. interest rate rise, saying the economic recovery still faced formidable headwinds and the central bank was sticking to its pledge to hold benchmark rates at exceptionally low levels for an extended period.
His comments took the shine off last Friday's non-farm payrolls report which showed a surprise fall in the U.S. jobless rate and triggered a drop in the yield of the interest rate sensitive two-year Treasury note.
The two-year note yield was last at 0.75 percent, well off Monday's high of around 0.87 percent.
There is still nervousness in the market, said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.
People have enough big picture things to worry about. I don't think there is complacency in the market.
MSCI world equity index <.MIWD00000PUS> and the FTSEurofirst 300 index <.FTEU3> of top European shares were both flat on the day.
In Asia, Japan's Nikkei <.N225> fell 0.3 percent.
Meanwhile, the dollar <.DXY> also struggled against a basket of major currencies, after having risen strongly on the back of Friday's U.S. payrolls report.
Bernanke's speech was dovish, and he suggested there would not be an immediate rate rise, said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.
There are more short dollar positions to cover, but we still see the currency weaken.
The dollar fell 0.6 percent versus the yen but was little changed against the euro at $1.4818. The euro was also 0.6 percent lower versus the yen at 131.85 yen.
Against the more cautious backdrop, government bond yields, which move inversely to prices, were mostly lower, particularly short-dated paper. The two-year German yield slipped 4.1 basis points to 1.295 percent.
Markets were little moved by the Japanese government finalizing a 7.2 trillion yen ($80.6 billion) stimulus package, slightly more than its original plan.
The stimulus news had been mostly factored in as the increase was almost due to pressure from the market, said Masaru Hamasaki, a senior strategist at Toyota Asset Management in Japan.
Investors are becoming more cautious as the year-end draws near and the price of risk is rising, according to the VIX fear factor index <.VIX>, which rose 4 percent on Monday.
Oil prices found a steadier footing near $74 a barrel after a 2 percent slide on Monday, but forecasts for a build in U.S. crude stocks and slow economic recovery were seen limiting gains.
Gold was little changed at $1.158.20 an ounce after a rebound to $1,168 lost steam as the dollar recovered from an earlier fall.
(Additional reporting by Atul Prakash and Naomi Tajitsu in LONDON and Susan Fenton in HONG KONG, editing by Mike Peacock)