European shares steadied after two days of losses and the euro recovered from a 3-week low on Wednesday as markets braced for the outcome of the Greek debt restructuring deal, and evidence mounted of a weaker outlook for the global economy.
With stimulus measures from the world's major central banks now mostly on hold, investors are searching for signs of growth and were disappointed when resource-rich Australia reported a weaker-than-expected performance in the final quarter of last year.
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This added to concerns about a slowdown in China and Brazil, and has thrown the focus on to the strength of the U.S. economic recovery with the release of key U.S. jobs data due at the end of the week.
"Given the fact that we are all waiting for the Greek (debt) deal, risk appetite is unlikely to pick up much, especially given U.S. payrolls data on Friday is coming up," said Melinda Burgess, currency strategist at RBS.
The euro, which plumbed a three-week low of $1.3103 late on Tuesday on worries over the growth outlook and the prospects for a successful Greek debt deal, was up 0.2 percent at around $1.3140.
Private holders of Greek debt have until late Thursday to accept the deal to restructure their holdings, which is key to enabling Greece to secure a 130 billion euro ($170.5 billion)bailout and meet a bond repayment due on March 20.
If fewer than 75 percent of creditors accept the offer, the deal could be off, potentially plunging the euro zone back into crisis.
SAFE HAVENS SOUGHT
The fear that Greece's bond swap would not receive a high enough level of participation kept safe-haven German government bond futures near record highs with the March contract, which expires on Thursday, at 140.27, having hit a record high of 140.48 on Tuesday, and the June contract at 138.45.
The worries over Greece sent yields on riskier euro zone debt in the opposite direction, wiping out some of the gains which followed the European Central Bank's massive injection of liquidity into the banking system last week.
Spain's 10-year bond yield rose 9 basis points on the day to 5.25 percent, while the equivalent Italian yield was 6.6 basis points higher at 5.15 percent.
The search for safe-havens also benefited the giant Japanese government bond market, where prices gained across the board, sending the 5-year yield to its lowest level since October 2010
"Expectations for more aggressive Bank of Japan easing at next week's policy meeting appear likely to be disappointed," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, Ltd.
"We acknowledge there haven been some tentative signs of a pick up in global growth in early 2012 although it remains unclear how sustainable that will prove."
RISK AVERSION RISES
It is in the equity markets where fears over the growth outlook were having the biggest effect with fresh data also showing South America's largest economy Brazil expanded just 2.7 percent in 2011 after surging 7.5 percent in 2010. Quarterly growth in final three months was a scant 0.3 percent.
The three main U.S. equity indexes recorded their biggest one-day percentage drop this year on Tuesday, while a key risk measure, the CBOE Volatility index (VIX) jumped nearly 16 percent, reflecting a receding appetite for riskier assets.
The FTSE Eurofirst index of top European shares edged up 0.35 percent after dropping of 2.6 percent in the previous session - its biggest daily fall in nearly four months.
A weaker session in Asia saw the MSCI world equity index edge lower to 322.74, but it remains up about 7.75 percent for the year to date.
In commodity markets oil prices gained after China said it would boost energy imports this year while concerns persist over supply risks and Iran's nuclear program, despite the country's offer for talks with major powers.
Front-month Brent gained 42 cents to $122.40 a barrel and U.S. oil increased by 44 cents to $105.14.
Gold regained some ground on Wednesday as jewelers in Asia snapped up the metal after prices dropped 2 percent in the previous session.
Silver followed gold higher, while platinum and palladium also rebounded from Tuesday's lows.
"Basically gold and other risky assets are all being lumped together. Nobody is really looking at individual fundamentals. They are just buying the dollar and pretty much selling everything else," said Nick Trevethan, a senior commodity strategist at ANZ in Singapore.