The beleaguered euro hovered just above a major support level of $1.25 on Friday as worries about Europe's debt problems plagued markets, pressuring stocks and pushing safe-haven gold to near record highs.

Weakness in Asia carried over into European shares, where major markets fell as much as 0.7 percent.

The declines in stock markets across Asia showed many investors were not ready to put money back into riskier assets, with the week's rebound in regional equities clawing back less than half of last week's plunge.

Instead, investors flocked to safer assets such as the U.S. dollar, gold, bonds and money market funds, fearing that Europe's debt problems may choke off a recovery in the world economy.

Love for the euro is almost non-existent at the moment, said Adam Carr, an economist at ICAP in Sydney. I don't know if there is a near-term catalyst to change the euro's fortunes.

Doubts that troubled European nations can overhaul their poor public finances, and fears that the region's ailing growth would suffer even more if austerity measures were successful, kept the euro under pressure just above its 14-month low of $1.2510.

By early afternoon in Asia, the euro was trading at $1.2530, little changed from levels seen overnight in New York. There was talk that some investors were trying to support it around these levels to protect option-related interests at $1.25.

But some traders said it may drop further if it breaches $1.25 as stop-loss sell orders kick in from investors who had bet on a bounce and want to limit any losses.

Less than a week after European authorities and the IMF tried to calm markets with a $1 trillion emergency aid plan, the euro has slid back to levels seen before the package was announced and stocks are again in retreat.

The MSCI index for Asian stocks outside Japan <.MIAPJ0000PUS> dropped 0.6 percent.

For the week, it gained around 3.6 percent, riding on a short-lived burst of optimism on Monday over the new euro zone rescue package. But it retraced less than half of last week's 8.4 percent dive, the largest weekly drop since the collapse of Lehman Brothers in September 2008.

Japan's Nikkei average <.N225> fell 1.5 percent, dragged down by a 6.7 percent tumble in electronics giant Sony Corp <6758.T> after it forecast profits that were not as strong as some had hoped.

Losses in Japanese stocks were further fueled by worries that a firm yen would eat into exporters' earnings power. Investors typically buy the yen in uncertain times as a safe-haven.

Asian markets were also pressured by losses on Wall Street, where downbeat comments from tech giant Cisco Systems Inc and retailer Kohl's Corp cast doubt on the strength of the U.S. economic recovery. <.N>

The movement of cash between markets further attested to investors' anxiety. Money market funds, perceived to be among the least risky investments, attracted new money this week for the first time since January as investors moved back into cash, data from EPFR Global showed. At the same time, the amount of money pulled from risky, high-yield bond funds hit a five-year high, while equity funds in emerging markets also suffered.

Stock investors seemed to prefer putting money instead in the United States, where flows into equity funds hit a 19-week high despite a mysterious flash crash on Wall Street on May 6 which authorities have still been unable to explain.

Oil was down 0.7 percent at $73.89 a barrel, hurt by concerns that a slowdown in Europe would curb energy demand.

Gold traded at $1,235.90 an ounce, after hitting a record high of $1,248.15 an ounce on Wednesday as investors sought a safe haven from euro zone uncertainties.

NO BULLS IN CHINA SHOP?

Stock market bears also re-emerged in China, where the Shanghai Composite Index <.SSEC> fell 0.5 percent after a rare winning session on Wednesday.

Fears that China's central bank would step too hard on the brakes of the economy by aggressively tightening monetary policy have taken a heavy toll on Chinese shares in Shanghai and Hong Kong this year.

Shanghai is the worst performing stock market in Asia so far this year, plunging 18 percent, outstripping a 2.6 percent decline in the MSCI Asia ex-Japan index.

A lack of positive news is weighing on the market, while the lower potential for funds entering the market is also adding pressure, said Chen Shaodan, analyst at Stockfly Securities in Beijing.

Starmine shows Chinese stocks are forecast to trade at a price-to-earnings ratio of 13 times next year, lower than last year's 15.8 times.

That suggests investors are either discounting for slower growth on the back of tighter policy, or that they expect companies to still post strong profits despite the central bank's moves.

(Additional reporting by Anirban Nag in SYDNEY; Editing by Kim Coghill)

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