Asian shares fell on Monday and the safe-haven dollar rose as concerns about faltering global growth and Europe's intractable debt crisis continued to sap investor confidence, but commodities steadied after a pummeling last week.
The euro also fell, despite moves late last week to ease funding strains on the euro zone banking system, as markets remained unconvinced that a European Union summit on June 28-29 will make substantial progress towards resolving the crisis.
"On the European side, you have concerns about the summit. It's not as if they have not had the repeated chances to get together to talk about this," said Nicholas Smith, Japan strategist at CLSA.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.6 percent, with South Korean shares losing more than 1 percent as index heavyweight Samsung Electronics <005930.KS> tumbled as much as 4 percent after brokers cut their second quarter profit outlook for the firm. Tokyo's Nikkei share average <.N225> also lost 0.6 percent. <.T>
European stocks were not expected to gain any traction, with financial bookmakers calling London's FTSE 100 <.FTSE> to open slightly higher but benchmarks in Frankfurt <.GDAXI> and Paris <.FHCI> to slip 0.2-0.3 percent. <.EU>
Growth-sensitive sectors were hardest hit in Asian markets outside Japan, with the MSCI index's tech and materials sub-indexes shedding more than 1 percent, while only the defensive telecoms and utilities sectors gained ground.
U.S. stocks had rebounded more than 0.5 percent on Friday, but Wall Street index futures were trading down around 0.5 percent in Asia, suggesting the gains may be short-lived. <.N>
Investors worry that Europe's debt crisis is adding to the slowdown in global economic growth, especially after a flurry of data last Thursday showing weakness in global manufacturing.
SUMMIT TO TALK ABOUT
The euro slipped around 0.3 percent to about $1.2525, while the dollar rose around 0.2 percent against a basket of major currencies <.DXY>, building on gains of around 1 percent last week.
Analysts at Barclays Capital expect the summit will yield more strong rhetoric in support of a roadmap towards tighter fiscal integration, rather than a definitive solution.
"This may disappoint markets to some extent. We prefer remaining long USD over the week especially against European currencies," they wrote in a note.
The European Central Bank is to start accepting a wider range of collateral and assets of a lower quality in its lending operations, it said on Friday, its second such move in six months to neutralize growing funding pressures on struggling banks.
But investors remain fearful that the crisis is spreading to the euro zone's bigger "peripheral" economies.
Both Spain and Italy are finding it increasingly hard to finance themselves in bond markets and still have a lot of money to raise to meet their funding requirements.
Italy's 10-year government bond yields are currently around at 5.8 percent with equivalent Spanish debt at 6.55 percent. Their Treasuries will both be hoping that European leaders do enough to encourage buyers.
Bond markets will this week be focused on Italy's sale of zero-coupon and inflation-linked bonds on Tuesday and medium- and longer-term bonds on Thursday. Spain is also due to sell three-and six-month Treasury bills on Tuesday.
"The success of the summit can probably best be measured by whether it achieves a meaningful and lasting decline in Spain's bond yields," Ric Spooner, chief market analyst at CMC Markets in Sydney, said in a note.
Commodities, which fell sharply last week on global growth fears, were firmer on Monday, with Brent crude oil gaining around 30 cents to clamber back above $91 a barrel and copper bouncing nearly 1 percent to around $7,380 a tonne.
Brent crude had fallen nearly 7 percent last week, while copper lost more than 2.5 percent. Oil is on course for its biggest quarterly fall since the financial crisis in 2008, as a flagging U.S. recovery and slowdown in China clouds energy demand while OPEC keeps supplies ample.
Gold, which lost nearly 3.5 percent last week amid fears developed economies could be sliding towards deflation, was steady around $1,573 an ounce.
But other assets linked to expected demand for commodities remained under pressure, with mining stocks such as BHP Billiton
"I think for the week ahead, people will still watch the EU summit for price direction of equities and gold," said Lynette Tan, an analyst at Phillip Futures in Singapore.
(Additional reporting by Dominic Lau in Tokyo, Ian Chua in Sydney and Lewa Pardomuan in Singapore; Editing by Eric Meijer)