The euro hit a two-year low of $1.2225 in early Monday Asian trade, but later steadied to trade up 0.1 percent higher on the day at $1.2285.
“What investors are most sensitive to right now is the risk of an economic deceleration around the world,” said Tetsuro Ii, president of Commons Asset Management.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.5 percent, pulled down by the energy and materials sectors.
But European stocks were expected to edge higher, however, with financial spreadbetters calling the main indexes in London, Paris and Frankfurt to open up 0.2 percent.
U.S. stock futures were down 0.3 percent.
China’s consumer and producer prices eased more than expected in June, signalling falling demand for goods from the world’s second-biggest economy and the likelihood of more growth-supporting policy moves from Beijing.
“We think the trend of easing consumer inflation will last in the coming months, which will provide much more scope for monetary policy relaxation going forward,” said Wang Jin, an analyst at Guotai Junan Securities in Shanghai.
That comes ahead of second-quarter China GDP figures on Friday expected to be the worst in at least three years, and after Japan’s core machinery orders fell at a record pace earlier on Monday as well as the weaker-than-expected U.S. payrolls data.
Premier Wen Jiabao said on Sunday that China needs to make aggressive efforts to fine-tune its economic policies to support an economy still under downward pressure.
Boston Fed President Eric Rosengren said the non-farm payroll data was disappointing and that it was possible to see a third round of quantitative easing to help the U.S. economy, depending on coming data.
Rosengren does not have a vote on Fed policy this year but regains the vote next year.
“So far data has been coming in weak and I gave a weak forecast myself,” Rosengren told reporters at a forum in Bangkok. “I think it’s appropriate to have more quantitative easing.”
Oil was supported by hopes that the weak China data would spur more stimulus to underpin growth and improve fuel demand, but gold failed to find direction on uncertainty over whether the U.S. jobs data would prompt any imminent policy action.
Japan’s Nikkei average shed 1.1 percent while 10-year Japanese government bond futures hit their highest since October 2010 and the 10-year yield touched 0.790 percent to match a nine-year low hit on June 4.
“Investors are pouring money into Japanese government bonds because they no longer feel certain about piling up Bunds due to increasing pressure on Germany to bear a greater burden for the euro zone’s problems,” said Ii at Commons Asset Management.
A bond dealer at a foreign bank in Tokyo noted that for JGBs, the Sharpe ratio, which gauges returns relative to volatility, is more than two times higher than both Bunds and Treasuries. A higher Sharpe ratio can mean a portfolio is managed efficiently and returns are not very volatile.
Investors’ renewed flight to safety comes after alarm about the global economy prodded a slew of monetary easing last week as well as a surprise agreement by European leaders late in June on steps to shore up the region’s banks.
After sliding more than $2 on worries about weakening demand on Friday, oil regained some ground, with U.S. crude futures up 0.4 percent at $84.80 a barrel and Brent trading 0.6 percent higher at $98.73 a barrel.
Spot gold was down 0.1 percent at $1,581.16 an ounce.
“The market is not sure where prices should go and the sentiment is fragile,” said Lynette Tan, an analyst at Phillip Futures.
Euro zone finance chiefs will try to flesh out plans to reinforce the single currency on Monday but their talks may merely highlight the limitations of last month’s deal to help indebted states and banks.
Spain, at the heart of the latest bailout talks, said it would take further austerity measures in coming days but urged euro zone leaders to quickly implement a rescue plan for the country’s struggling banks.
Rising Spanish and Italian bond yields and declining German yields just a week after the European meeting indicates urgency in overcoming the implementation hurdles, analysts said.
“More tangible action in the form of risk sharing is needed now. Absence of more flexible and larger financial assistance is set to weigh on the periphery,” Michala Marcussen, an economist at Societe Generale, said in a research note.
Asian credit markets weakened with the return of risk aversion, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 7 basis points.