World stocks edged higher toward a recent two-year high on Monday while the euro hit a two-week low as concerns over the euro zone debt crisis stayed in focus following last week's Irish rating downgrade.
Tensions in Korea also made investors wary. Despite threats of war by Pyongyang, South Korea launched live-fire drills on a disputed island after an emergency U.N. Security Council meeting failed to agree on how to defuse the crisis.
Last week's five-notch credit rating downgrades of Ireland by Moody's and the absence of immediate steps from European leaders to contain the crisis weighed on the single currency while supporting safe-haven German government bonds.
The ratings change at the end of last week is still keeping the euro under selling pressure, said Carl Hammer, currency strategist at SEB in Stockholm.
There is an underlying uncertainty with regards to the euro zone which is very much in focus. European Central Bank head Jean-Claude Trichet warned on Monday Ireland needed to follow its bailout plan to the letter, while the ECB voiced serious concerns a new law drafted by Dublin could force the central bank to take losses on the collateral it accepts in exchange for loans to commercial banks.
The MSCI world equity index was up around 0.2 percent while the Thomson Reuters global stock index was steady on the day.
The FTSEurofirst 300 index rose 0.9 percent, boosted by utility shares, while Asian shares fell a third of a percent. U.S. stock futures were up around 0.2 percent, pointing to a firmer open on Wall Street later.
Macroeconomic figures were lately on the upside... If momentum in economic data continues to be good, then the market can stay around the current levels, said Koen De Leus, strategist at KBC Securities, in Brussels.
Emerging stocks lost 0.3 percent.
U.S. crude oil rose 0.2 percent to $88.19 a barrel as freezing temperatures in Europe and the U.S. Northeast looked set to boost demand for heating fuel.
Bund futures rose 40 ticks, with the tensions in Korea supporting flows to safe-haven assets.
The euro fell as low as $1.3125 before trimming losses to $1.3160.
The lack of any substantive plan to bulk up the (European stabilization fund) or provide an alternative crisis management system has kept the market euro-negative as the downgrades keep rolling in from Moody's on Ireland, Spain etc, Lloyds TSB said in a note to clients.
While there may well be something more forthcoming over the next few weeks, for the moment the market is likely to see this as a green light to sell the euro, suggesting risks of a break below $1.30 in euro/dollar this week.
The dollar was steady against a basket of major currencies. The Korean won briefly hit a four-week low against the dollar after South Korea's drills.
(Additional reporting by Naomi Tajitsu and Atul Prakash; Editing by John Stonestreet)