The euro held steady on Tuesday, taking a breather after its slide to a record low versus the Swiss franc the previous day, but is still vulnerable to fears that Europe's debt crisis could worsen. The single currency stabilised versus the dollar after having bounced off chart support near $1.4007 the previous day, and could extend that rebound given market talk of stop-loss bids near $1.4140.
But its outlook was clouded by heightened concerns that the debt crisis engulfing Greece may ensnare Italy and Spain as well. Highlighting such worries, yields on both Italian and Spanish 10-year government bonds climbed above 6 percent on Monday, taking them closer to the 7 percent level, beyond which funding costs are perceived to be unsustainable.
"Italian and Spanish government bond yields have risen pretty sharply. If that continues, a risk-off trend on the back of concerns about Europe could continue and spur buying of both the yen and the dollar against the euro," said Junya Tanase, chief FX strategist for J. P Morgan Chase Bank in Tokyo.
The euro edged up 0.1 percent versus the Swiss franc at 1.1543, having bounced up from a record low of 1.1365 hit on Monday on trading platform EBS. Against the dollar, the euro held steady at $1.4109.
The single currency's drop the previous day, on the back of concerns that recent stress tests of European banks were not stringent enough, had stalled near support at $1.4007, a 61.8 percent retracement of the euro's rise last week to $1.4282 from a four-month low near $1.3838.
There was talk of good demand for euros near $1.4050, and traders cited stop-loss euro bids around $1.4140. Eurozone leaders will meet on Thursday to try to finalise a second round of aid for Greece worth 110 billion euros ($154 billion). But it remained unclear how a consensus could be reached for private owners of Greek government bonds - banks, insurers and other investors - to contribute by taking cuts in the face value of their holdings.
Since the focus is on a new rescue package for Greece, the eurozone leaders' meeting is unlikely to produce specific steps to address the rise in Italian and Spanish bond yields, said J. P Morgan's Tanase.
The dollar edged up 0.1 percent against the yen to 79.08 yen, staying above a four-month low of 78.45 yen hit last week on EBS. The Australian dollar rose 0.2 percent to $1.0631. The Aussie took only a brief knock after the Reserve Bank of Australia moved away from an explicit warning of higher interest rates.