The euro and European stock markets were mostly stable on Monday as fears of rating agency downgrades over the euro zone debt crisis lingered, while news of the death of North Korean leader Kim Jong-il fed fears of regional instability in Asia.
MSCI's world equity index <.MIWD00000PUS> was down around 0.4 percent, while the key FTSEurofirst 300 <.FTEU3> index recovered from early losses to be little changed from Friday's closing level.
The main focus for markets remains the developments in Europe and the subsequent implications for global growth, said Lee Hardman, currency strategist at BTM-UFJ.
The euro slipped about 0.2 percent to $1.3020 versus the dollar, edging back towards an 11-month low hit last week of $1.2945 on fears that ratings downgrades for several European countries could derail progress towards resolving the euro zone's debt crisis.
The dollar index <.DXY>, which tracks the greenback against a basket of currencies, was flat for the day at 80.26, paring gains made in the Asian session.
Eurogroup finance ministers will discuss progress in pursuing fiscal consolidation later on Monday, after a key summit earlier this month failed to produce a convincing plan to solve the region's funding problems, prompting rating agencies to respond negatively.
The finance ministers also face a deadline on Monday to decide their contributions to a plan to extend up to 200 billion euros in bilateral loans to the IMF to bolster its crisis-fighting muscle.
Fitch was the latest rating agency to warn it may downgrade European sovereign debt. It said France and six other euro zone countries could see their ratings cut as a comprehensive solution to the region's debt crisis was technically and politically beyond reach.
Moody's Investors Service also cut Belgium's credit rating by two notches to Aa3 late on Friday, sending the benchmark 10-year Belgian bond yield 7 basis points higher to 4.4 percent. The yield spread between 10-year Belgian debt and equivalent German bonds widened to 252 basis points.
NORTH KOREAN RISK
North Korea's announcement on Monday that its leader Kim Jong-il died of a heart attack while on a train trip on Saturday sparked immediate concern over who is in control of the reclusive state and its nuclear program.
Kim Jong-un, Kim's youngest son, was named by North Korea's official news agency KCNA as the great successor.
The news prompted a sharp fall in South Korean stocks, where the benchmark index closed at a three-week low, down 3.4 percent<.KS11>.
Geopolitical risks have been quite high this year ... and this (the North Korean leader's death) adds to a global environment of rising risks so it's not good news, said Thomas Costerg, European Economist at Standard Chartered Bank.
German government bonds were steady early on Monday, supported by some safe-haven buying linked to the death of the North Korean leader and the ratings agency warnings.
While credit downgrades are anticipated, trade is expected to thin out ahead of the Christmas holidays.
Commodities, already under pressure due to Europe's sovereign debt crisis, also fell on the North Korean news, but were seeing some recovery in Europe. Brent crude was up 0.3 percent at about $103.65 a barrel. Gold, usually regarded as a safe-haven asset in times of uncertainty, recovered from losses seen in Asia and was steady at $1,594.55 an ounce.
(Editing by Hugh Lawson)