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 Markets were also cautious ahead of the start of a two-day meeting
of the Federal Reserve later on Tuesday, the latest step towards the
U.S. central bank's first rise in interest rates in almost a decade.
But the focus remained squarely on Greece's fate in the euro zone
after both Athens and its creditors hardened their stances following
the latest breakdown in talks.
Greek Finance Minister Yanis Varoufakis told a German newspaper that
he is not planning to present new reform proposals at a Eurogroup
meeting on Thursday, despite warnings from the rest of Europe that
time is running out.
Asked if he would present new plans, Varoufakis said: "No, because
the Eurogroup (of euro zone finance ministers) is not the right
place to present proposals which haven't been discussed and
negotiated on a lower level before."
Germany's DAX, France's CAC and stock markets in Italy and
Spain fell 0.7 - 1.5 percent as they extended their losses over the
last few weeks to between 6 and 8 percent. Britain's FTSE was down
0.5 percent.
The lure of the safety of German government debt also remained
strong as Bund yields dropped, periphery euro zone yields pushed
higher and the euro remained highly volatile in the currency market.
It was tossed back up to $1.13 as 1-month euro volatility, which hit
a 3-1/2 year high on Monday, showed little sign of abating and as
Europe's top court said the bond buying plan European Central Bank
chief Mario Draghi brought in 2012 when he promised to do "whatever
it takes" to save the euro was in line with EU law.
Traders were trying to position too for the Federal Reserve meeting,
which will conclude on Wednesday with a quarterly news conference
and provide updated forecasts.
Having spent much of the Asian session on the front foot, the dollar
index which measures it against the world's other top currencies,
was virtually flat again in Europe.
"There is going to be some informational content in the dot charts,
but it is going to be what chair Janet Yellen says at the press
conference that will matter the most," said Eric Stein at
U.S.-focused investment manger Eaton Vance.
"The pace they go at (with hikes) and the terminal rate that they
end are more important than the month they first hike, but the
market is -- wrongly in my opinion -- viewing the timing of the
first rate as a signal."
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FEELING THE PINCH
Global equity markets were feeling the pinch of combined Greek and
Fed uncertainty.
"The macro duo of the FOMC and Greece continue to create jitters --
it will be a daily theme for the next month ... in the case of the
Fed, the next three to four months," Evan Lucas, market strategist
at IG in Melbourne, wrote.
China's high-flying stocks lost some altitude with a 3 percent
tumble, South Korea's Kospi fell 0.7 percent and Japan's Nikkei
dropped 0.6 percent, as the external factors overcame signs its
economy is gaining traction.
Australian shares bucked the trend and ended flat as hopes for more
easing by the Reserve Bank of Australia following its latest meeting
minutes provided support.
The dollar had also received a small lift after Bank of Japan
Governor Haruhiko Kuroda said his remarks on the yen last week were
not an assessment of nominal forex levels. Kuroda had caused a sharp
drop in the dollar last week when he told parliament the yen was
already "very weak".
In the main commodity markets U.S. crude oil rose as a tropical
storm hit the coast of oil-producing Texas. U.S. crude was up 1
percent at 60.14 a barrel, paring the previous day's losses suffered
on Greek debt angst. Brent climbed 0.5 percent to $65.25 a barrel.
Global economy-sensitive metal copper was stuck near a three-month
low at $5,787.50 a tonne, while traditional safe-haven gold retained
most of its recent gains as it hovered at $1,183 an ounce.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by
Sonya Hepinstall)
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