By Marc Jones
LONDON (Reuters) - Greece's financial crisis and signs of growing opposition to austerity in Spain sent the euro to its lowest level in a month on Tuesday, while shares and commodities took a knock as the dollar pushed higher.
Europe's main markets returned to action after a long weekend with the mood unsettled by Sunday's strong local election showing by anti-austerity parties in Spain and with the clock ticking down on Greece's bid to get aid from the euro zone to stay afloat.
Wall Street was expected to open down 0.2 percent, having also been closed on Monday and with the dollar still on the up after confident-sounding comments from Federal Reserve head Janet Yellen and solid inflation data at the end of last week.
Traders were bracing for a deluge of data ranging from manufacturing and services to house price and consumer confidence figures to gauge the recent state of the world's largest economy.
The first flurry of numbers came from goods orders, which showed a solid increase in business investment plans for a second straight month.
"The outlook for Fed policy normalisation is again gaining traction and certainly with Greek risk there is nothing that would dampen this trend," said Ulrich Leuchtmann, head of FX strategy at Commerzbank in Frankfurt.
"There is good reason for continued dollar strength but if it goes too quickly we will see the same thing as happened in March and early April because there will be the question about what effect it will have (on the U.S. economy)."
The dollar was hovering at an eight-year high against the yen and a one-month peak against a basket of other big currencies as the data and the Wall Street opening bell approached.
Europe's main stock markets had clawed back most of their early losses, while the euro was back above $1.09 as the sell-off in southern euro zone debt markets eased despite the Greek and Spanish jitters.
The earlier flight into safe-havens meant Switzerland's 10-year bond yields were back in negative territory for the first time this month, though. Spanish, Portuguese and Greek bonds were all still in the red despite being calmer.
A senior German official who spoke on condition of anonymity said on Tuesday there were some "encouraging" signs from talks with Greece and doubted it would default on a payment due to the IMF in early June.
Separately, it emerged that deputy finance ministers would hold a teleconference on Thursday to follow up on days of Greek negotiations with the International Monetary Fund (IMF), the European Central Bank and European Commission.
ASIAN GAINS
Europe's tentative recovery pulled global shares MSCI's benchmark All World index away from what had look like being its biggest fall in three weeks, though it was still down 0.25 percent.
Overnight, Asian shares had reversed early losses to end up 0.12 percent on the back of the latest gains for high-flying Chinese, Hong Kong, and to a lesser degree, Japanese markets.
Hong Kong's Hang Seng index jumped 1.3 percent, to near a seven-year high, on expectations of more money inflows from mainland China following Beijing's moves to expedite cross-border investment. China's main bourses hit seven-year highs and the Nikkei made a 15-year top.
In the currency market, the dollar's move to a one-month high against its currency basket extended a rally triggered by Friday's robust inflation data and comments from Yellen that she expected the economy to strengthen.
Her Vice Chair Stanley Fischer added in a speech in Israel on Monday that too much importance was being placed on the central bank's first rate hike, and it would take a few years to get rates back to more normal levels.
"I think this has turned around and the dollar is back on a bullish trend," said Ian Stannard, head of European FX strategy with Morgan Stanley in London referring to the data.
"The adjustment has now been completed and the dollar can now react to any positive news. Dollar yen breaking through the top of the range is an important event."
The dollar index was last up 0.9 percent on the day at 96.861 having earlier been as high as 97.121. U.S. treasuries yields and volatility indexes had also nudged lower in European trading.
With the greenback flexing its muscles, pressure remained on commodity markets, however. Gold, copper and most metals dipped while Brent oil slipped to $65.02 a barrel and U.S. crude lost 0.7 percent to leave it at $59.31.
(Additional reporting by Patrick Graham in Warsaw; Editing by John Stonestreet and Hugh Lawson)
