The euro huddled near 9-month lows against the US dollar and share markets fell as investors feared coming meetings of euro zone policymakers would yield nothing quick or concrete on Greece.
Euro zone finance ministers meet on Monday and Tuesday to discuss the crisis of confidence in debt-laden Greece and are expected to insist on more painful medicine.
European shares were expected to open slightly higher, bucking weakness in Asian stocks, as investors awaited the finance ministers' meeting.
On Sunday, European Central Bank President Jean-Claude Trichet said Greece needed to take necessary extra measures to make its recovery plan credible.
Yet various media reports say Athens will resist any new measures until mid-March, when officials from the EU, ECB and International Monetary Fund are due to dissect Greece's deficit-cutting plans.
The European Central Bank and European Commission agreed last week to work together to monitor Greece but EU leaders failed to come up with a concrete rescue package. Euro zone officials appear adamant that the hard work must be done primarily by Greece at this stage, rather than by the EU.
“A pledge of solidarity and promises of a tough stance on Greece are a certainty. As will be the hope from those making the promises that commitment alone will be sufficient to soothe market nerves,” said Michael Blythe, chief economist at Commonwealth Bank in Sydney.
“Then investors can ponder what spread to charge a sovereign with a weak balance sheet, poor public administration, structural shortcomings and looming demographic challenges,” he added.
Worries over Greece's ability to fund its debt and weakness elsewhere in the euro zone have hammered the euro in recent weeks, dragging it to a nine-month trough of $1.3533 last Friday.
On Monday, the single currency was pinned at $1.3600 and in danger of testing a major chart bulwark down around $1.3483.
The euro's woes have been a boon to the dollar, which hit a seven-month high against a basket of major currencies last week. On Monday the US currency was holding firm at 80.416 on the index and at ¥90.15.
Figures from the Commodity Futures Trading Commission showed speculators had amassed record short positions in the euro, essentially betting it had further to fall, while piling up huge long positions in the US dollar.
Trade was very thin on Monday with markets on Lunar New Year holiday in China, Hong Kong, Singapore, Taiwan and South Korea. The United States is also off for President's Day.
Investors offered only a muted cheer for news that Japan's economy grew at a surprisingly brisk 4.6% annualized pace last quarter. However, inflation-adjusted growth was only so high because economy-wide prices fell even faster than expected, down 3.0% compared to the fourth quarter of 2008.
The benchmark Nikkei lost early gains to end 0.8% lower, while the broader Topix fell 1%. The Australian ASX 200 fell 0.36%.
Markets were still reverberating from China's decision late on Friday to lift reserve requirements at banks for the second time this year. The surprise move stoked concerns it could slow robust growth there, which has largely led the global recovery, though most analysts argue such worries are overdone.
“While monetary tightening has begun in China, we continue to view this as a positive, pre-emptive effort to avoid a more pronounced boom-bust cycle that would otherwise occur further down the line,” Larry Kantor, head of research at Barclays Capital, wrote in a note.
Crude oil futures were steady above $74 after Japanese growth data eased concerns that energy demand would taper off as China tightens policy.
Gold edged up 0.2% to above $1,095 per ounce, with traders watching moves in currency markets.
On Thursday, spot gold rose to a session high of $1,097.75 an ounce, the highest since February 4, as investors turned to the metal as a hedge against currency volatility after news that European governments had agreed in principle to support Greece. (Reuters)