The dollar fell as doubts grew yesterday that the G7 would move to support it, while Asian stocks stalled as investors focused on weakness in US tech earnings over strong results in financial stocks.
Persistent concerns about the US current account deficit also helped soften the dollar, traders said. The euro bought US$1.2688 by 7am, up from a one-month low of US$1.2350 hit late last week.
The dollar weakened against the yen to around ¥106.78, just off last week's three-year lows around ¥105.70.
Tokyo stocks gave up early gains after electronics components makers, such as Alps Electric Co Ltd, fell following disappointing earnings by their US peers.
"Banks and corporations are taking profits on their shareholdings ahead of bookclosings [at the end of March], and that selling is cancelling out buying by foreign investors, who are still pretty bullish on Japanese shares," said Norihiro Fujito, a senior investment strategist at Mitsubishi Securities.
The tech-sensitive Nikkei average ended down 0.02 percent at 11,000.70, after a 0.91 percent decline in the previous session and well below its morning high of 11,115.13.
Alps Electric sank 4.97 percent after the US hard-disk drive industry leader Seagate Technology warned that current-quarter earnings would fall below analyst expectations.
A rebound in National Australia Bank and gains in other major banks helped drive Australia's benchmark stock index to its highest close in 19 months. The benchmark S&P/ASX 200 index rose 0.6 percent to 3,326.6.
Most other markets in Asia were closed for the Lunar New Year.
In Europe, early estimates indicated rises of 14 to 16 points on London's FTSE, 10 to 26 points on Germany's Dax and between two and 24 points on France's Cac-40.
Traders were keenly awaiting results from the world's top mobile phone maker Nokia, due at 11am, which were expected to show solid Christmas sales, but also increased competition from Asian competitors such as Samsung Electronics and LG Electronics.
Foreign exchange dealers expected more choppy trade as the market seeks hints about whether, if at all, policymakers from the G7 industrial countries nations will express a concerted view on the dollar's weakness at their meeting in Florida on Feb. 6 and 7.
"European officials started screaming about the euro's strength, but looking at what happened after the G7 in Dubai, I don't think they want to mention anything explicitly this time," said Toru Umemoto, a Morgan Stanley currency strategist in Tokyo.
At the Dubai meeting, G7 ministers called for more flexible exchange rates, a call the market perceived was aimed at Asia but which, in the weeks that followed, drove the dollar down against the euro.
Meanwhile, data showed foreign investors bought a record amount of Japanese bonds last week and analysts said they would keep on buying as long as the yen looked likely to climb higher.
Foreign investors bought a net ¥767 billion (US$7.18 billion) of Japanese bonds in the holiday-shortened week of Jan. 12 to 16 after net purchases of ¥61.2 billion the previous week, Ministry of Finance data showed yesterday.
Japanese government bond (JGB) prices rose yesterday following a good result at a ¥500 billion (US$4.7 billion) 20-year JGB auction.
The price of key 10-year JGB futures for March delivery rose 0.22 point to ¥138.79, while the benchmark 10-year JGB yield fell two basis points on the day to 1.315 percent.
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