World stocks came off their lows and the euro inched up from an earlier 10-year trough against the yen on Monday as speculation that the European Central Bank might cut interest rates to help the economy countered concern over the euro zone debt crisis.
Concerns about the global economic slowdown have not gone away, with gold tumbling and copper suffering its biggest one-day drop since the 2008 financial crisis.
ECB Governing Council member Ewald Nowotny was quoted as saying that the possibility of interest rate cuts should not be ruled out.
Germany's Ifo economist Klaus Abberger also said he expected the ECB to cut interest rates toward 1 percent, although it was not clear what the time frame would be for such a move.
Speculation over euro zone easing countered investor concerns about how effective Europe's latest steps to stop fallout from any Greek default, including finding ways to beef up their existing 440 billion euro rescue fund.
Until policymakers come up with a long-term solution to address the debt crisis, the short-term prospects for copper and equities will remain bearish, said Phillip Futures analyst Ong Yiling.
The MSCI world equity index halved its losses to be down 0.5 percent on the day, having hit its lowest since July 2010 on Friday. The index has fallen more than 23 percent since hitting a three-year high in May and is also down 17 percent since January.
European stocks reversed losses to rise 0.8 percent. Emerging stocks were down 1.5 percent after hitting their weakest since September 2009.
U.S. crude oil dropped 1.5 percent to $78.68 barrel.
Gold dropped more than 5 percent in Asian trading, while copper fell as much as 6.1 percent to $6,914 a tonne, its sharpest fall since October 2008.
Concerns over the potential impact of a Greek default, especially on the banking sector, and worries over a U.S. economic slowdown had been weighing on world stocks, fanning safety-seeking flows into top-rated government bonds.
Deep differences remain over whether the ECB should commit more of its massive resources to shoring up Europe's banks and help struggling euro zone member countries.
Bund futures fell 48 ticks on the day.
The dollar was steady against a basket of major currencies.
The euro fell as low as 101.90 yen and hit an eight-month low of $1.3361, before trimming losses.
A smaller-than-expected decline in the Ifo index, which gauges German business morale, also helped sentiment a little.
(A modest decline in) the Ifo index should dampen the current recession fears for the time being but sends at the same time a clear warning to German policymakers that the solid growth should not be taken for granted. Discussions on possible stimulus packages could be revived in a couple of months, said Carsten Brzeski, an economist at ING.