Asian shares and the euro traded in tight ranges on Thursday ahead of a Spanish bond sale seen as a key test of investors' risk appetite amid renewed concerns over the euro zone's debt crisis.

European shares were also expecting a mixed start, with financial spreadbetters predicting that major European markets <.FTSE> <.FCHI> <.GDAXI> would open between down 0.2 percent and up 0.2 percent. U.S. stock futures were up 0.1 percent. <.EU> <.L> <.N>

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> edged 0.1 percent lower, spending the session vacillating in a band between up 0.2 percent and down 0.2 percent. Australian shares <.AXJO> outperformed with a 0.4 percent gain, helped by mining and energy stocks as oil prices recovered.

Japan's Nikkei average <.N225> slid 0.9 percent, taking its cue from a fall in U.S. stocks on Wednesday as uninspiring earnings from tech bellwethers IBM and Intel gave investors a reason to take profits a day after Wall Street's best gains in a month.

I would expect a narrow range in today's trading because traders will have a ‘wait and see' approach ahead of tonight's Spanish 10-year bond auction, said Miguel Audencial, trader at CMC Markets. The result will give a good indication on how the market will perform in the next few days.

Spain will auction two- and 10-year bonds later on Thursday (around 04:40 a.m. EDT), after drawing stronger-than-expected demand for shorter-dated debts on Tuesday. Its 10-year government bond yield shot above 6 percent earlier this week, raising fears that the country would not be able to manage its public financing and would have to turn to an international bailout.

Doubts over Europe's ability to stick to harsh measures to slash high public debts began to grow when Spain abruptly relaxed its deficit targets earlier this month. Italy then said on Wednesday its priority was now to revive economic growth, delaying by a year its budget balancing goal.

Bank of Spain data showed on Wednesday how sliding house prices and a looming recession hit the financial sector, with Spanish banks' bad loans rising to their highest level since October 1994 in February.

The euro eased 0.1 percent to $1.3112 while the dollar rose 0.1 percent against the yen at 81.33. A firmer dollar <.DXY> measured against a basket of major currencies pushed spot gold down 0.3 percent to $1,637.

The upside is very heavy because the euro remains under pressure and the weak physical demand isn't helping, said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.


In addition to the test of market confidence in Spain's restructuring efforts, there are several key factors that could set the tone for the euro and risk appetite in coming weeks.

One is the two-round presidential election in France starting on Sunday, with opinion polls showing French President Nicolas Sarkozy facing a tough challenge from Socialist Francois Hollande, who has a double-digit lead for a May 6 runoff.

If the first round results show Sarkozy losing, it could be seen by markets as raising the probability of him losing on May 6, putting at risk the close cooperation between France and Germany in resolving the euro zone crisis, said Ayako Sera, a senior market economist at Sumitomo Trust and Banking.

It is difficult for investors to tip the balance of risks either way. The euro is holding relatively firm despite the uncertainties, but that's because investors have already built a high level of euro short positions and are sidelined, she said.


Markets, jittery about EU capacity to prevent Spain's fiscal woes from spreading to vulnerable peripheral euro zone economies, eyed the role played by the European Central Bank, which maintains that governments must act to tackle their fiscal reforms, not rely on action from the central bank.

ECB policymaker Jens Weidmann reiterated that view in an interview with Reuters.

Europe urgently needs to bolster its fragile safety net, and global finance ministers meeting in Washington later this week could agree on the amount by which they will boost the International Monetary Fund's financial firepower to help supplement Europe's rescue scheme.

The United States, which will not spend any more money of its own, on Wednesday threw its support behind commitments by other nations to boost the IMF's financial resources.

Oil futures recovered, with Brent rising 0.3 percent at $118.26 a barrel while U.S. crude pared earlier gains to inch down 0.1 percent at $102.58.

Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points.

(Additional reporting by Miranda Maxwell in Melbourne and Rujun Shen in Singapore; Editing by Alex Richardson and Eric Meijer.)