Equities stabilized on Tuesday, helped by technology shares ahead of Apple's earnings, though the euro sagged, suggesting investors may keep cutting their exposure to risks in the face of default threats in the United States and Europe.

U.S. stock futures were up 0.3 percent and European share markets were expected to open slightly higher, though risky assets may be on borrowed time.

With the clock ticking in Washington before an August 2 deadline on the federal borrowing limit, political leaders were still at an impasse. Europe also appeared no closer to sealing a deal for a second bailout of Greece ahead of Thursday's European Union summit.

Investors for the most part appear to be assuming that the U.S. debt ceiling will be lifted and a default averted, with the 10-year Treasury yield camped comfortably below 3 percent, but stakes are running high in the euro zone.

Italian and Spanish 10-year bond yields rose above 6 percent on Monday in the wake of stress tests on the region's banks, pulling further away from German Bund yields and reflecting a low degree of confidence that policymakers can contain the crises. Funding costs are perceived to be unsustainable if yields rise over 7 percent.

Italian and Spanish government bond yields have risen pretty sharply. If that continues, a risk-off trend on the back of concerns about Europe could continue and spur buying of both the yen and the dollar against the euro, said Junya Tanase, chief FX strategist for JPMorgan Chase Bank in Tokyo.

Japan's Nikkei share average was down 0.8 percent <.N225>, well off a four-month high hit on July 8. Markets in Tokyo had been closed on Monday for a holiday.

Foreigners are selling mega banks and buying defensive names like NTT, said a trader at a European brokerage, referring to a telecom company.


China's benchmark stock indexes were down across the board after the Shanghai composite <.SSEC> hit a two-month high on Monday.

Some investors were on the prowl, though, for value in Asian equities, where sovereign balance sheets are in markedly better condition than the West.

Khiem Do, head of multi-asset group at Barings Asset Management in Hong Kong, told Reuters Television that bank stocks in Asia were what he considers a hidden gem being overlooked by markets because of their low valuations but relatively strong fundamentals.

The time to hold high dividend yields and cash may have passed already. The stocks that have been defensive are not cheap any longer and the cheap stocks or sectors are those that have been beaten down and usually related to growth, Do said.

The MSCI index of Asia Pacific shares outside Japan was largely unchanged on the day <.MIAPJ0000PUS>, with outperforming technology and telecom equipment sectors offsetting financials and industrials.

Hopes for tech stocks were running high ahead of Apple Inc's quarterly results due later. Thomson Reuters Starmine's SmartEstimate, which gives a greater weighting to more accurate forecasters, for the June quarter's earnings is 3 percent higher than the median expectation, suggesting a chance Apple may surprise to the upside.

Shares of News Corp listed in Sydney were up 2.5 percent after Bloomberg reported the media conglomerate -- suffering from a spreading phone hacking scandal -- was considering elevating the current Chief Operating Officer to be a chief executive.

The company said it is fully behind current CEO Rupert Murdoch.


The euro was down against the dollar a touch at $1.4085, and down 0.1 percent against the Swiss franc at 1.1521 francs.

The franc has been a big winner in the past few months, serving as a haven along with gold from fiscally weak G10 countries. Though the rapid move into the Swiss franc has cooled, widening Italian and Spanish bond yield spreads over Bunds will likely trigger fresh selling of euro/Swiss franc.

Deutsche Bank said a basket trade that is short the dollar, sterling, yen and the euro -- the major currencies tied to fiscally weak economies -- and long the rest of the G10 currencies has annual excess returns of 8.1 percent so far this year.

Precious metals have also been a beneficiary of investors seeking hard assets as debt crises in Europe and the United States grow. Spot gold edged up 0.1 percent to $1,605.51 an ounce in early Asian trade, though off the record high of $1,607.01 reached on Monday.

Silver has been catching up lately with gold's advance, though was nearly flat on Tuesday, at $40.53 an ounce, off Monday's high of $40.70 -- its highest since May 4.

(Additional reporting by Masayuki Kitano; Editing by Richard Borsuk)