Asian shares and the euro eased on Tuesday, with a relief rally from last week's heavy selling faltering quickly as a surge in Spanish borrowing costs added to simmering worries about Europe's debt restructuring challenges.
MSCI's broadest index of Asia-Pacific shares outside Japan inched down 0.1%, hovering near its lowest level since late December touched on Friday.
Japan's Nikkei average opened down 0.3%.
Spain's plan to use public debt to revive one of its troubled banks raised concerns it could use public money to recapitalise other fragile lenders, further lifting the country's debts and making its refinancing efforts even more difficult amid surging borrowing costs.
Spanish 10-year bond yields jumped to 6.53% on Monday - their highest since November 2011 - pushing the yield premium over safe-haven German Bunds to 515 basis points, its widest in the 13-year history of the euro.
A 10-year sovereign debt yield exceeding 7% is widely perceived as unsustainable for an economy, and could force the country to seek an international bailout, as was the case for Greece, Ireland and Porugal.
The climb in Spanish yields underscored the lack of confidence in Madrid's ability to stabilise its finances and banking sector.
As markets turned to Spain while awaiting Greece's crucial June 17 elections, Athens handed 18 billion euros to its four biggest banks on Monday, via bonds from the European Financial Stability Facility rescue fund, allowing the stricken banks to regain access to ECB funding.
"Everything is lined up for a corrective week for risk assets," said currency strategist Kit Juckes at Societe Generale in a note to clients.
"The release of the US labor report on Friday could potentially be pivotal for risk appetite. Many investors and traders will want to have light(er) positions in the run-up."
The euro failed to follow through on its short covering rally on Monday, staying under strong selling pressures.
"And that could bring the wider risk bounce to a pretty sharp end. It's all a story of a squeeze that never really squeezed shorts out," Juckes said.
The single currency fell 0.2% to $1.2519, inching closer to the $1.2495 hit on Friday, its lowest since July 2010. Traders said a break below $1.25 could accelerate its spiral downward.
As investors sought the safety of US dollars, the dollar index, which tracks its performance against a basket of major currencies, was down 0.1% at 82.347 but still near Friday's high of 82.461, its strongest since September 2010.
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Asian credit markets were subdued early on Tuesday, with the spread on the iTraxx Asia ex-Japan investment-grade index barely changed from Monday.
US crude was up 0.2% at $91 a barrel on Tuesday.
Resurfacing Middle East oil supply worries on minimal progress in talks over Iran's nuclear programme supported Brent crude futures, lifting them up to a high of $108.04 a barrel on Monday. Brent was down 0.1% at $107.06 on Tuesday.
