The dollar gained and global stocks fell on Wednesday on renewed nervousness over Europe's debt problems ahead of key government bond auctions this week, but signs of support from Germany saw some of the losses trimmed.
U.S. stock index futures also dipped a day after major indexes hit a five-month high, with weakness in the euro testing the recent view that the U.S. market was decoupling from Europe.
The main U.S. data release of the day will be the Beige Book, the Federal Reserve's anecdotal information on current economic U.S. conditions.
The euro fell more than half a percent to a session low of $1.268 after a senior Fitch Ratings official told Reuters that the ECB should ramp up buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro.
"There are plenty of events coming up that the market is preparing for and the Fitch headline didn't help. The euro is obviously vulnerable to a move lower," Jennifer Hau, G10 currency strategist at Lloyds Bank said.
But the losses were trimmed when German Chancellor Angela Merkel, speaking after talks with Italy's Prime Minister Mario Monti in Berlin, said Germany would be prepared to pay more capital into the European Stability Mechanism fund when it is launched later this year.
The dollar against a basket of major currencies was up 0.6 percent at 81.41.
The concerns about Europe's deep-rooted debt problems nudged the FTSEurofirst 300 index of top European shares down 0.7 percent to 1,020.67 points after it touched 1,029.32 earlier in the session, the highest since early August. The index surged 1.8 percent in the previous session.
The MSCI world equity index also reversed early gains to be down 0.25 percent.
In the debt market Italian 10-year bond yields rose back to about 7.0 percent and Spanish yields were up about 7 basis points to 5.31 percent as investors sought higher returns to hold the debt.
Investor attention is focusing on Spain, which sells up to 5 billion euros ($6.4 billion) of 2015 and 2016 paper on Thursday, just hours before an ECB interest rate decision. Italy offers up to 4.75 billion euros of five-year bonds on Friday.
GREEK DEAL EYED
Concerns were also growing over Greece, where negotiations with private sector bondholders over a debt restructuring plan are coming to a head.
Hedge funds are taking on the International Monetary Fund over its plan to slash Greece's towering debt burden, and time is running out to seal a deal to secure further funds from its euro zone partners.
If Greece fails to conclude a deal on the funding it may face default in March, when 14.5 billion euros of its bonds mature.
The concern over Greek efforts to secure further aid boosted safe-haven demand when Europe's dominant economy, Germany, sold 3.15 billion euros ($4 billion) of five-year government bonds on Wednesday.
Redemptions from other AAA-rated issuers this week also helped the sale, offsetting news that Germany's economy was showing the first signs of pain from the euro crisis, shrinking by 0.25 percent in the last three months of 2011 compared with the previous quarter.
Overall, German gross domestic product (GDP) grew 3.0 percent in 2011, according to official preliminary data, down from the previous year's growth rate of 3.7 percent, but outperforming its peers in euro zone due to strong domestic demand and exports.
Germany weathered the region's debt woes better than its euro zone peers last year, supported by foreign as well as domestic demand, but recent data points to a weaker start for 2012.
Gold rallied for a second day on Wednesday, hitting its highest in a month after a stronger euro helped boost the price above a key technical level and evidence of strong demand from major consuming nations further supported the market.
Spot gold was at $1,637.70 after hitting a four-week high of $1,646.56 an ounce in Asia.
A blast in Tehran highlighted concerns about disruption of oil supply from Iran, pushing Brent crude higher on Wednesday and outweighing worries about the effect on demand growth of Europe's debt crisis.