The euro hovered near four-month lows while European shares dipped on Thursday, with investors expected to avoid riskier assets due to the deepening turmoil in Greece and fears of contagion to other stressed euro zone economies.
News on Wednesday that some Greek banks face emergency funding needs dealt a further blow to risk sentiment, already beaten down by worries about much slower economic growth in China, a fragile US jobs market and a shock trading loss at JPMorgan Chase & Co.
"There is a severe reluctance to take on additional risk in the European region, people are more likely to look at US and some parts of Asia," said Neil Marsh, strategist at Newedge.
Worries about the worsening situation in Greece were heightened when the European Central Bank said it had stopped providing liquidity to some Greek banks that have not been successfully recapitalised.
The euro traded around $1.2740, off a four-month low of $1.2681 reached in the previous session, while the dollar, measured against other key currencies, edged up to near a four-month high reached on Wednesday.
The dollar's rise is putting commodities under pressure with Brent crude slipping to a near four-month low under $110 a barrel.
European shares ticked higher at the open in line with a recovery in Asian markets, but quickly turned lower with the FTSE Eurofirst index of top European shares down 0.4% 988.47 points.
The focus is likely to switch to Spain later when it auctions 2.5 billion euros of three- and four-year bonds, against a backdrop of a deepening recession and fears over the health of its banking system which have pushed its 10-year bonds yields above 6%.
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