The euro hovered near four-month lows and European shares extended their losing streak on Thursday, as investors avoided riskier assets due to the deepening turmoil in Greece and fears of contagion spreading to other stressed euro zone economies.
News that some Greek banks face emergency funding needs dealt a further blow to risk sentiment, already beaten down by worries about slower economic growth in China, a fragile U.S. jobs market and a shock trading loss at JPMorgan Chase.
But the downward momentum, apparent earlier in the week when the political turmoil in Greece sparkled a sharp rise in expectations it would leave the euro zone, has eased.
"There is a severe reluctance to take on additional risk in the European region, people are more likely to look at the U.S. and some parts of Asia," said Neil Marsh, strategist at Newedge.
A surprisingly strong first-quarter performance by Japan, the world's third-largest economy, helped ease global growth fears, while a holiday in many European countries added to a sense of calm in the markets.
The common currency was trading at $1.2724, up just 0.1 percent on the day, though not far from a four-month low at $1.2681 hit on Wednesday.
"The market is pricing in a lot of bad news and weaker euro zone structural issues, so there is a chance that the euro will be taking a breather," said Geoffrey Yu, currency strategist at UBS.
But sentiment remained fragile with investors anxious about the implications for the euro area if leftwing Greek politicians, who reject harsh austerity measures, win a second round of elections to be held on June 17.
The euro has already shed 3.9 percent in May, coming close to its 2012 trough of $1.2624 reached in mid-January.
A move by the European Central Bank to stop providing liquidity to some Greek banks, which are severely under-capitalised, only added to the concerns.
The new French government also warned it will not ratify the European pact on fiscal discipline unless it is amended to include ambitious commitments to promote economic growth, underscoring the spilt a the heart of Europe over how to deal with the region's debt crisis.
Global shares, as measured by MSCI's world equity index , were largely unchanged at 304.7 points, after U.S. stocks ended a choppy session flat and Asian shares staged a modest recovery following their biggest one-day drop in six months on Wednesday.
MSCI's emerging markets index rose 0.3 percent with gains partly driven by a 1.4 percent rise in China which makes up almost a fifth of the index.
But the pan-European FTSEurofirst 300 index fell a further 0.5 percent to 987.68 points, which takes it close to the 2012 low of 983.95 points.
The blue-chip Euro STOXX 50 index also slipped 0.8 percent to 2,157.13 points, close to its 2012 low of 2,142.78 points.
Tensions in the euro zone sovereign debt market gained some relief from Spain's successful sale of 2.49 billion euros in shorter-dated government bonds, although the country's borrowing costs increased significantly compared with previous sales.
Benchmark Spanish 10-year bonds yields rose through the key 6 percent mark at the start of the week as contagion fears spread from Greece, but did not move much after the debt auction to be around 6.3 percent.
A rebound in the dollar as investors sought safety from the turmoil in Europe is putting commodities under pressure but the steadier tone in the euro on Thursday helped a small recovery.
Gold rose about 1 percent to $1,550.53 an ounce as bargain-hunting emerged after prices tumbled to a 4-1/2 month low in the previous session.
Brent crude slipped to a near four-month low under $110, edging down 21 cents to $109.54 a barrel.