By Marc Jones
LONDON (Reuters) - Caution about Greece ahead of a meeting between its prime minister and Germany's Angela Merkel prompted a nervy start to the week for European markets on Monday.
Shares and currencies in Asia, in contrast, had rallied on easy monetary policy hopes and another tick down in oil prices.
The euro and Europe's main share markets fell in early trading, giving back some of the gains made at the end of last week after the U.S. Federal Reserve eased fears of an aggressive rise in its interest rates.
The benchmark FTSEurofirst share index dropped 0.6 percent, pulling back from a seven-year high, while the euro dipped back to $1.0780 as southern euro zone bonds also saw some selling despite the ECB's ongoing bond buying programme.
Attention was focusing back on Greece with Prime Minister Alexis Tsipras due to meet Angela Merkel in Berlin later.
As Greece needs to reach agreement with its creditors to secure fresh funds, Athens' plan seems to be to seek mercy from EU leaders. By doing so it is going over the heads of euro zone finance ministers and the European Central Bank and IMF, hoping that they will see the broad political cost of a Greek collapse rather than focus on the nitty gritty of funding and required economic reforms.
That doesn't look like a winning strategy so far however. The message from EU leaders has been clear -- no reforms, no money.
"What we have essentially is a continuation of the Greece cash squeeze where it is a dancing on the edge of a precipice," said Alvin Tan, an FX strategist at Societe Generale in London.
"They are running out of money so it looks like the next 1-2 weeks are going to be pretty important."
The weakness in the euro helped lift the dollar index but there was no convincing rebound from the greenback. Last week saw its biggest fall since 2011 after the Fed issued a warning about the currency's recent strength.
Against the Japanese yen, the dollar stood at 119.90 yen, down about 0.1 percent on the day and well below Friday's session high of 121.205. U.S. 10-year Treasury yields also moved further below 2 percent to 1.939 percent.
OIL SLIPS ON SAUDI COMMENTS
The Fed's interest rates tend to set the marker for global policy and the possibility of an extension to the era of record low interest rates had lifted risk appetite in Asia.
Weaker dollar signs powered Asian currencies higher, with Malaysia's ringgit, the second-worst performing Asian currency this year, marking its best day in seven weeks.
MSCI's broadest index of Asia-Pacific shares outside Japan added about 0.5 percent as Chinese shares rallied to a new seven-year high on hopes of more support measures for the ailing property sector.
Japan's Nikkei ended 1 percent higher at 19,754.36, refreshing a 15-year high as it closed in on 20,000.
"Sentiment for Japanese stocks has been positive, and the 20,000-mark is in sight in the short-term," said Isao Kubo, equity strategist at Nissay Asset Management.
Australian shares, however, turned negative after the S&P/ASX 200 index fell just a few points shy of the 6,000 level.
Global growth hopes were also given a boost as oil slipped after Saudi Arabia said over the weekend that it would not unilaterally cut its output to defend prices.
Brent was down about 1 percent at $54.75 a barrel, after rising last week for the first time in three weeks, and U.S. crude shed 1.6 percent to $45.85 after marking its first positive week in five.
Gold, which investors often buy as an inflation hedge when interest rates are low and benefits from a lower dollar, steadied near a two week-high as it hovered at $1,182 an ounce.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Susan Fenton)
