PARIS – European leaders’ hard line in negotiations with Greek bondholders drove stock markets lower on Tuesday as investors worried that a deal necessary to cut Athens’ mountain of debt might fall through.

After 10 hours of talks on Monday, the finance ministers of the countries that use the euro announced that Greece would pay less than 4 percent interest on the new bonds creditors will get in a swap meant to cut Greece’s debt by about euro100 billion ($130 billion).

The deal is crucial to Greece’s and the eurozone’s stability since it’s clear there’s no way Athens can ever pay back all that it owes. Banks that hold Greek debt have already been asked to take a 50 percent loss on those investments — and some think even that writedown isn’t big enough.

The negotiations involve a delicate balancing act between getting a deal large enough to ensure that Greece can someday dig out from under its pile of debts but not so harmful to banks that it scares investors off from investing in any eurozone debt.

European leaders have promised Greece is a special case and bondholders won’t ever be asked to take losses again, but there are signs that investors are staying clear of the bonds of other vulnerable countries, like Portugal.

Time is running out for politicians and the banks to get it right — Greece has several billions of euros of debt coming due in March — and stocks dropped Tuesday amid worries they might not.

In France, the CAC-40 fell 0.8 percent to 3,312, while Germany’s DAX dropped 1 percent at 6,370. The FTSE index of leading British shares was down 0.7 percent to 5,740.

Wall Street was also set to open lower. Dow futures fell 0.3 percent at 12,609 and S&P futures dropped 0.4 percent to 1,305.

The euro fell 0.2 percent to $1.3000.

Politicians are also aware that European banks are under tremendous pressure because of the amount of government debt they hold and have seen their stock prices crash and their sources of funding dry up during the crisis. Late Monday, Standard & Poor’s downgraded the credit ratings of two major French banks, Credit Agricole and Societe Generale. They confirmed the rating of a third major bank, BNP Paribas, but the stock prices of all three plummeted Tuesday, underscoring how fragile all financial institutions are.

Compounding these concerns is the poor state of Europe’s economy and worries that the eurozone is slipping back into recession. Even relatively positive results from two economic surveys released Tuesday were not enough to ease those worries.

January’s manufacturing purchasing managers’ composite index rose to 48.7 from 46.9, according to Markit, a financial data company. The services PMI rose to 50.5 from 48.8. Both surveys, which are considered indicators for growth, beat the expectations of analysts, but experts warned they are far from good news.

“While the January purchasing managers’ surveys lift hopes that eurozone activity is stabilizing, they also suggest that the eurozone is far from out of the economic woods,” said Howard Archer, an analyst with IHS Global Insight. “Worrying elements remain in the purchasing managers’ surveys and we suspect that it is still more likely than not that the eurozone will suffer further contraction in the first quarter of 2012 which will put it back into recession.”

Concerns about the state of economy even tempered oil prices, which had been skyrocketing after European leaders announced they would stop buying Iranian oil in an effort to pressure Tehran into resuming talks on its nuclear program.

Benchmark oil fell back 30 cents to $99.28 in electronic trading on the New York Mercantile Exchange.

Earlier in Asia, Japan’s Nikkei 225 stock rose 0.2 percent to 8,785.33 despite the central bank cutting growth forecasts for the fiscal year ending March 2012 and the following year because of a slowdown in overseas demand and the strong yen.

Australia’s S&P/ASX 200 closed little changed at 4,224.20. Indonesia’s benchmark was up 0.1 percent at 3,994.91 and India’s Sensex was 1.5 percent higher at 16,997.35 after the Reserve Bank of India lowered cash reserve requirements for commercial lenders.

FRANKFURT (Reuters) – Top executives at Deutsche Boerse (DB1Gne.DE) and NYSE Euronext (NYX.N) sent a letter to European Commissioners emphasizing the "European" nature of a combined company, in a bid to salvage their deal after antitrust regulators threatened to block it.

The letter was sent by NYSE Euronext Chief Executive Duncan Niederauer and Deutsche Boerse chief Reto Francioni on January 13, and was addressed to European Union Commission President Jose Manuel Barroso and also copied to the remaining 26 commissioners, a copy of the letter seen by Reuters shows.

In it, executives from Deutsche Boerse and NYSE Euronext expressed "profound concern" that blocking the takeover "would represent a serious missed opportunity at a critical juncture for Europe."

Earlier this month, European Commission antitrust regulators signaled they would recommend blocking a merger over concerns about creating a dominant player in derivatives, a source told Reuters.

Deutsche Boerse and NYSE have now focused their efforts to convince the so-called college of 27 commissioners that EU antitrust commissioner Joaquin Almunia's conclusions are wrong, and that approving the deal would help advance EU interests.

"The transaction will facilitate the effective implementation of European Union financial services regulation and offer a unique opportunity to deepen regulatory cooperation and reduce the risk of regulatory arbitrage," the letter said.

"If this combination is prohibited by the College of commissioners, the global consolidation of exchanges might very well shift the balance towards countries favoring 'light touch' regulation, which would severely endanger the European Commission's agenda," the letter continued.

In the letter Deutsche Boerse Chief Reto Francioni and NYSE Euronext head Duncan Niederauer said the new company would be domiciled in the European Union and be strictly under European supervision.

Furthermore, 80 percent of the governance of the company and

70 percent of the revenues would be generated within the European Union, the letter said.

"The new company would accelerate the integration of Europe's capital markets, and serve as the vanguard for the implementation of European Union and G20 regulatory reforms," the letter said.

The college of commissioners will give a formal ruling by February 9.

Both executives again emphasized that a review of the deal should look at the derivatives market from a global, rather than just European perspective, and should include the over-the-counter market.

"Contrary to the views expressed by the Directorate General for Competition, effective competition will continue to exist, in particular due to over-the-counter trading, the global nature of the derivatives market, and our strong global rivals.

"For instance, CME, the largest derivatives exchange in the world, competes with us directly in Europe, has more employees in Europe than NYSE Liffe and a larger interest rate derivative portfolio than our combined businesses."

The letter said Europe would be disadvantaged given that the U.S. had approved the merger of Chicago Mercantile Exchange with the Chicago Board of Trade in 2007 to create CME.

The European Commission has demanded Deutsche Boerse and NYSE sell either the Eurex derivatives arm or Liffe, a move that both exchanges have ruled out so far.

German union representatives on Wednesday said they would be pleased if the European authorities blocked the deal. "We had feared there would be grave consequences for Frankfurt as a financial centre if the deal succeeded."

(Reporting By Foo Yun Chee in Brussels; writing by Edward Taylor; Editing by Helen Massy-Beresford)

(This story is corrected in the second paragraph to reflect number of commissioners to 26, from 27)

FRANKFURT (Reuters) – Top executives at Deutsche Boerse (DB1Gne.DE) and NYSE Euronext (NYX.N) sent a letter to European Commissioners emphasizing the "European" nature of a combined company, in a bid to salvage their deal after antitrust regulators threatened to block it.

The letter was sent by NYSE Euronext Chief Executive Duncan Niederauer and Deutsche Boerse chief Reto Francioni on January 13, and was addressed to European Union Commission President Jose Manuel Barroso and also copied to the remaining 27 commissioners, a copy of the letter seen by Reuters shows.

In it, executives from Deutsche Boerse and NYSE Euronext expressed "profound concern" that blocking the takeover "would represent a serious missed opportunity at a critical juncture for Europe."

Earlier this month, European Commission antitrust regulators signaled they would recommend blocking a merger over concerns about creating a dominant player in derivatives, a source told Reuters.

Deutsche Boerse and NYSE have now focused their efforts to convince the so-called college of 27 commissioners that EU antitrust commissioner Joaquin Almunia's conclusions are wrong, and that approving the deal would help advance EU interests.

"The transaction will facilitate the effective implementation of European Union financial services regulation and offer a unique opportunity to deepen regulatory cooperation and reduce the risk of regulatory arbitrage," the letter said.

"If this combination is prohibited by the College of commissioners, the global consolidation of exchanges might very well shift the balance towards countries favoring 'light touch' regulation, which would severely endanger the European Commission's agenda," the letter continued.

In the letter Deutsche Boerse Chief Reto Francioni and NYSE Euronext head Duncan Niederauer said the new company would be domiciled in the European Union and be strictly under European supervision.

Furthermore, 80 percent of the governance of the company and 70 percent of the revenues would be generated within the European Union, the letter said.

"The new company would accelerate the integration of Europe's capital markets, and serve as the vanguard for the implementation of European Union and G20 regulatory reforms," the letter said.

The college of commissioners will give a formal ruling by February 9.

Both executives again emphasized that a review of the deal should look at the derivatives market from a global, rather than just European perspective, and should include the over-the-counter market.

"Contrary to the views expressed by the Directorate General for Competition, effective competition will continue to exist, in particular due to over-the-counter trading, the global nature of the derivatives market, and our strong global rivals.

"For instance, CME, the largest derivatives exchange in the world, competes with us directly in Europe, has more employees in Europe than NYSE Liffe and a larger interest rate derivative portfolio than our combined businesses."

The letter said Europe would be disadvantaged given that the U.S. had approved the merger of Chicago Mercantile Exchange with the Chicago Board of Trade in 2007 to create CME.

The European Commission has demanded Deutsche Boerse and NYSE sell either the Eurex derivatives arm or Liffe, a move that both exchanges have ruled out so far.

German union representatives on Wednesday said they would be pleased if the European authorities blocked the deal. "We had feared there would be grave consequences for Frankfurt as a financial centre if the deal succeeded."

(Reporting By Foo Yun Chee in Brussels; writing by Edward Taylor; Editing by Helen Massy-Beresford)

Jan 9 (Reuters) – The Securities and Exchange Commission has urged banks to publish more details about their exposure to European sovereign debt, a factor in the recent bankruptcy of the futures brokerage MF Global Holdings Ltd (MFGLQ.PK).

In guidance issued on Friday, the regulator's Division of Corporation Finance said disclosures by publicly-traded financial institutions have been "inconsistent in both substance and presentation."

It said this could make it harder for investors to discern how much risk the banks are taking, both individually and relative to each other, and how the exposures will affect operating results or financial health.

The SEC urged that banks reveal direct and indirect exposures "separately by country, segregated between sovereign and non-sovereign exposures."

It said they should also provide more details on hedging, through such instruments as credit default swaps, and sums they might need to raise if forced to close out their positions.

"In determining which countries are covered by this guidance, registrants should focus on those experiencing significant economic, fiscal and/or political strains such that the likelihood of default would be higher than would be anticipated when such factors do not exist," the SEC said.

The non-binding guidance was issued about two months after MF Global filed for bankruptcy protection, amid a liquidity crunch spurred by investor and customer worries about its $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain.

MF Global had revealed that exposure in the prior week.

Worries about European debt exposure have also weighed on the stocks of Morgan Stanley (MS.N) and the investment bank Jefferies Group Inc (JEF.N).

The SEC is trying to learn more about some of the more opaque means that banks use to reduce the risk of credit losses, including derivatives and off-balance-sheet financings. This could reduce the threat of further liquidity shortfalls.

An SEC spokesman declined to comment.

Another regulator, the Financial Industry Regulatory Authority, has stepped up oversight of leverage at brokerages after concluding that MF Global had not been fully candid in disclosing its European debt exposure as little as one month prior to the bankruptcy.

Jon Corzine, a former New Jersey governor, stepped down as MF Global's chief executive on November 4, four days after the New York-based company's bankruptcy filing. (Reporting by Jonathan Stempel in New York; Additional reporting by Carrick Mollenkamp in New York and Sarah N. Lynch in Washington, D.C.; editing by Carol Bishopric)

LONDON (Reuters) – Better-than-expected data from China's giant manufacturing sector boosted global stocks and the euro on Tuesday and pushed safe-haven bets like German bonds lower.

Europe's debt crisis still clouds the outlook ahead of a daunting first quarter of borrowing which is expected to push the euro lower and undermine demand for the region's lower-rated sovereigns.

Signs of improved growth in the United States may also cool any speculation about another round of money-printing by the Federal Reserve, improving the outlook for the dollar.

"The overall bias remains for more euro weakness…given the growth and debt dynamics," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.

The euro rose 0.3 percent against the dollar to $1.2983, but stayed within striking distance of its 2011 trough of $1.2858 hit last week.

"There's a little bit of optimism in the markets after upside surprises on the Chinese data front and also German manufacturing PMI was slightly better than expected yesterday," said Manuel Oliveri, currency strategist at UBS in Zurich.

"But generally we stick to the view that rallies in the euro should be sold into," he added.

ECONOMIC DATA EYED

The official Chinese purchasing managers' index released on Sunday indicated a slight rise in factory activity in December.

Investors will also watch the UK manufacturing PMI for January, due at 0928 GMT, and ISM Manufacturing PMI data for the United States at 1500 GMT for further signs of recovery.

European stocks extended recent gains to open up 0.9 percent after hitting a two-month high on Monday while London traders were still on holiday. The heavily commodity-weighted UK FTSE 100 (.FTSE) index opened up 1.9 percent.

U.S. crude jumped around 1.5 percent to almost $109 a barrel, also reflecting a bounce over the Christmas period due to escalating tensions between Iran and the West.

Spot gold rose as much as 1.4 percent to $1,586.95 earlier on Tuesday, also helped by investors renewed appetite for riskier assets.

Influential investor Jim Rogers, a well-known commodities bull, told Reuters he remains bullish on commodities in general but expects gold will drop further given the run-up over the last 10 years.

"In my view, gold could go to $1,200-$1,300 (an ounce)," Rogers said in an interview with Reuters Insider.

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Asset returns in 2011: http://r.reuters.com/suz52

Sector performance in 2011: http://link.reuters.com/wuv75s

Debt crisis in graphics: http://r.reuters.com/hyb65p

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(Additional reporting by Neal Armstrong and Masayuki Kitano)

PARIS (Reuters) – European stocks ended higher in their first trading session of the year on Monday, led by defensive utilities such as E.ON (EONGn.DE) and GDF Suez (GSZ.PA), while volumes were anaemic as UK and U.S. markets remained closed for the New Year holiday.

The FTSEurofirst 300 (.FTEU3) index of top European shares provisionally closed 1 percent higher at 1,011.14 points, the index's highest close in two months, with investors shrugging off gloomy data from the euro zone showing the region's manufacturing activity declining for a fifth straight month in December.

A number of traders and analysts, however, warned about the risk of hangover from the brisk two-week Christmas rally when most investors come back to work later in the week.

"The odds for a post-party headache will indeed be high," Saxo Bank trading advisor Didier Abbato said. "The bad news is that Santa did not deliver on a quick fix solution to Europe's financial troubles."

The STOXX 600 utility index (.SX6P), one of the worst performers among European sectors in 2011 with a loss of 17 percent for the year, paced the gains on Monday, up 2.2 percent,

with E.ON up 4.2 percent and GDF Suez up 2.9 percent.

(Reporting by Blaise Robinson, Editing by Caroline Jacobs)

LONDON (Reuters) – European shares made a positive start to the New Year as they extended a two-week rebound in thin trade on Monday, with automotive stocks and euro zone banks leading the charge.

At 1216 GMT the FTSEurofirst 300 index of European shares was up 0.6 percent at 1006.07, breaking above the full retracement level of the December7-Dec 19 fall.

Volumes on the index registered a slight pick-up from last week's lows but remained thin at 37 percent of the 90-day average as the British and United States markets were closed.

With many fund managers still on holiday, equity markets were driven by short-term trades into sectors enjoying technical rebounds, such as automotives (.SXAP), euro zone banks (.SX7E) utilities (.SX4P) and insurers (.SXIP).

"People are looking for underperformers and rotating sectors every few days," a trader said.

"They're scared and keep their finger ready: if the market inches up, they buy, if it moves down, they don't."

Auto stocks were the top performers as they gained 1.9 percent after breaking above their 200-day moving average at the open, with tire makers Continental (CONG.DE) and Nokian Renkaat (NRE1V.HE) rising 4.7 percent and 2.4 percent, respectively.

The insurance and utilities sectors also outperformed as they broke above the 50 percent retracement of the November sell-off.

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Asset returns in 2011: http://r.reuters.com/suz52s

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EURO ZONE

Euro zone banks rose 1.2 percent after closing above the 38.2 percent Fibonacci retracement level of the November move on Friday.

Natixis argued current valuations on euro zone banks provided a "major buying opportunity," arguing the region's leaders would not allow any default by a large country and the European Central Bank is providing adequate liquidity support to lenders.

"A default by a large euro zone country and/or its withdrawal from the euro is a virtually zero probability event," Natixis said in a note.

"As this event would have catastrophic consequences (on the rest of Europe), there are grounds to think that it will not occur."

The comments came as Greece's central governor warned that exiting the euro would have disastrous consequence for his country and the Greek government reaffirmed its belief that a return to the drachma can be avoided if reforms are implemented.

Natixis also noted euro zone banks have started to reduce their exposure to troubled sovereign debt other than domestic paper, and are working to increase profitability to meet stricter capital requirements.

Around Europe, Germany's Xetra Dax (.GDAXI) and Italy's FTSE Mib outperformed, as they rose 1.9 percent and 1.5 percent respectively, helped by better-than-expected manufacturing data.

Italy's and Germany's PMIs for December were unexpectedly revised up on Friday, while the euro zone reading was kept unchanged at 46.9, pointing to a slowdown in the rate at which the area's manufacturing activity is shrinking.

(Editing by David Cowell)

FRANKFURT, Germany – Global stock markets opened a risk-filled New Year still hung over from a rough 2011, with little direction to trading and many exchanges closed.

Germany’s DAX, which fell 14.7 percent last year, rose 1.4 percent Monday to 5981.79, while the French CAC-40, which ended 2011 17 percent lower, climbed 0.6 percent to 3,179.17. Stocks fell in South Korea and closed flat in Taiwan.

Trading was light with the New York, London and most Asian stock exchanges closed.

Germany steelmaker ThyssenKrupp led German shares higher with a gain of 3.9 percent and insurer Allianz SE rose 3.1 percent.

Many of the world’s leading indexes are coming off a down year. Britain’s FTSE was off 5.6 percent by year end, Japan’s Nikkei fell 17 percent to its lowest close since 1982, and the Standard & Poor’s 500 showed zero gain.

Data releases later in the week such as eurozone inflation on Wednesday and German factory orders and U.S. non-farm payrolls on Friday will give traders more grist.

For the moment, there was little to propel markets ahead of new market data later in the week, as well as major hurdles for eurozone leaders to surmount in the first few weeks of the year in their attempt to get control of the shared currency zone’s government debt woes that threaten to harm the global economy with another financial meltdown.

Much of the attention in coming weeks will center on Italy, the eurozone’s third-largest economy and the focal point of the eurozone’s struggle to deal with a crisis caused by heavy levels of government debt. Fears of default on those debts mean that bond investors demand ever-higher interest, making it a challenge for the new government of Prime Minister Mario Monti to roll over euro53 billion ($69 billion) in debt maturing in the first quarter. If a country can no longer borrow affordably to pay off bonds that are maturing, it faces eventual default or a bailout.

Debt woes may be compounded by at least a mild recession over the last quarter of 2011 and the first part of 2012.

A survey of European purchasing managers sounded a downbeat note about the economy, showing activity in the manufacturing sector contracting for a fifth straight month in December. The manufacturing PMIs indicate that eurozone industry are “finding life extremely challenging,” said Howard Archer at IHT Global Insight, which predicts a 0.4 percent shrinkage in the eurozone economy when fourth quarter figures come out next month.

In Asia, South Korea’s Kospi, which lost 11 percent of its value last year, closed nearly unchanged at 1,826.37. South Korea’s tech sector move higher, with Samsung Electronics up 2.1 percent and LG Electronics gaining 2.3 percent. Steel giant POSCO slid 1.1 percent and Korea Electric Power shed 1.8 percent.

Taiwan’s TAIEX, which was also open for business Monday, fell 1.7 percent to 6,952.21. Foxconn Technology, the world’s biggest contract electronics manufacturer, which makes iPads and iPhones for Apple Inc., fell 0.9 percent. Personal computer maker Acer Inc. shed 2.3 percent.

The Asian-Pacific region’s major benchmarks, including Japan’s Nikkei 225 index, Hong Kong’s Hang Seng Index and Australia’s S&P ASX 200, were closed.

Last year was one that traders would prefer to forget: most Asian equity indexes closed out 2011 deeply in the red. The Nikkei in Tokyo ended the year at 8,429.45 — its lowest closing since 1982.

China’s benchmark Shanghai Composite Index, closed Monday, endured a 21 percent loss for the year as the impact of Beijing’s multibillion-dollar stimulus faded and the government tightened curbs on lending and investment to cool blistering economic growth.

Hong Kong’s Hang Seng Index finished at 18,434.39 — a precipitous slide of 19.7 percent from a year ago. Singapore’s Straits Times Index took a 17.5 percent dive when it closed at 2,646.35 on Friday.

Australia’s benchmark S&P ASX 200 ended the year at 4,140.4 — 14.5 percent lower for 2011.

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AP Business Writer Pamela Sampson contributed to this report from Bangkok.

LONDON (Reuters) – European shares inched higher on Monday with trading light due to British markets being shut and gains expected to be limited as worries about the euro zone debt crisis remained.

Traders said worries about debt raising in Italy, which is at the centre of the region's crisis, in the first part of the year would likely to cap gains going into the New Year.

Italy needs to raise 450 billion euros in debt markets in 2012 and with ten-year Italian yields above 7 percent – a level considered unsustainable – investors are unlikely to pile back into the market in a hurry.

"It is very low volume, and I think it is going to be a pretty tough year ahead," Mark Priest, senior trader at ETX Capital, said.

"We have had nothing but doom and gloom. Italy has a whole tranche of debt to repay and that could have a significant knock-on effect for Europe if they do not do well."

Spain could be dragged back into the centre of the euro zone debt crisis after its new government said on Friday that this year's budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes.

Utility stocks featured amongst the top performers, with E.ON (EONGn.DE) and RWE (RWEG.DE) rising 1.5 percent and 1.2 percent respectively as investors stuck to companies which are considered safe havens in economically tough times.

By 0916 GMT, the pan-European FTSEurofirst 300 (.FTEU3) index of top shares was up 0.3 percent at 1,004.34 points after recording their biggest annual drop since 2008 on Friday for the last day of the trading year.

Traders also said with major markets such as Britain being closed for a bank holiday and volumes light, movements were likely to be exaggerated throughout the day.

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Asset returns in 2011: http://r.reuters.com/suz52s

Sector performance in 2011: http://link.reuters.com/wuv75s

Debt crisis in graphics: http://r.reuters.com/hyb65p

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Economic data also showed a grim picture of the euro zone's ability to weather the region's debt crisis, with the region's manufacturing activity declining for a fifth consecutive month in December, although at a slightly slower rate than November.

Sunday marked the 10th anniversary of the introduction of euro notes and coins and policymakers urged governments in the region to follow a tough savings course in 2012 to overcome the debt crisis.

(Reporting by Joanne Frearson; Editing by Mike Nesbit)

PARIS – Buoyant U.S. consumer confidence figures helped stock markets in Europe and on Wall Street to eke out modest gains Tuesday in very light holiday trading but Italian shares dipped as the country’s key borrowing rate ratcheted up to worrisome levels.

In the run-up to Christmas, investors have been cheered by a slew of upbeat U.S. economic indicators, particularly related to the crucial shopping season.

That continued Tuesday with the closely-watched survey into U.S. consumer confidence from the New York-based Conference Board. Its main Consumer Confidence Index rose almost 10 points to 64.5 from a revised 55.2 in November. That was above market expectations for a more modest rise to 60.

Though below the 90 level that indicates an economy on solid footing, the survey provided further evidence that the U.S. economy enjoyed a decent holiday shopping season. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

“The consumer is sitting pretty in winter wonderland according to the Conference Board,” said Andrew Wilkinson, an analyst at Miller Tabak & Co.

The figures helped cement the advance in markets in Europe and the U.S.

In Europe, France’s CAC-40 rose 0.3 percent to 3,110 while Germany’s DAX was up 0.4 percent at 5,900. The FTSE index of Britain’s leading shares remained closed.

On Wall Street, the Dow Jones industrial average was up 0.3 percent at 12,324 while the broader S&P 500 index rose by an equivalent rate to 1,269.

One market bucking the trend was Italy’s FTSE MIB, which was trading 0.9 percent lower as the yield on the country’s ten-year bonds struck 7 percent once again — a level that is considered unsustainable in the long run and eventually forced Greece, Ireland and Portugal to seek outside financial help.

Italy is the eurozone’s third-largest economy and is considered to be too big to save under current bailout facilities. Mario Monti, the country’s new premier got parliamentary approval last week for a big austerity package that is intended to save the country from financial disaster. Markets have grown increasingly fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around euro1.9 trillion ($2.5 trillion).

Despite ongoing worries over the spread of Europe’s debt crisis to Italy, the euro was trading 0.1 percent higher too at $1.3064.

However, analysts said the euro could face some choppy waters over the coming couple of days as Italy prepares for a couple of bond auctions on Wednesday and Thursday.

“The euro is little changed as markets look ahead to Italian government debt auctions later this week, which are likely to set the tone for the single currency and the wider foreign exchange market,” said Vassili Serebriakov, a currency strategist at Wells Fargo Bank.

Markets took little notice of figures from the European Central Bank showing that Europe’s banks parked a record euro411.8 billion ($538.2 billion) overnight at the bank on Monday.

Heavy use of the ECB’s deposit facility has been a sign of distrust in interbank lending markets, as banks remain wary of lending to each other and prefer to hold it at low interest rates at the ECB. However, it can also rise and fall for technical reasons as banks adjust their liquidity requirements, especially in the run-up to the year-end.

The narrow ranges across stock markets reflect light holiday trading conditions. Markets in Europe and the U.S. were closed Monday and trading is expected to be light most of this week though there could be some year-end movements, particularly on Friday as investors look to lock in any gains they may have made.

Earlier in the day, Asian shares fell after a disappointing profit performance by Chinese companies and a warning that Japan faces “significant downside risks” due to Europe’s debt problems. That warning came from a Finance Ministry representative at a November Bank of Japan meeting, the bank said Tuesday.

Tokyo lost 0.5 percent to 8,440.56 while Seoul’s Kospi shed 0.8 percent to 1,842.02. Taipei, Singapore and Jakarta also declined. Hong Kong and Sydney were closed.

China’s benchmark Shanghai index dropped nearly 1.1 percent to 2,166.21 after the country’s government reported that profit growth slowed at its major industrial companies. Total profit in the January-November period rose 24.4 percent over a year earlier, down 0.9 percent from the growth rate for the first 10 months of the year.

Oil prices tracked equities higher. Benchmark crude for February delivery was up 27 cents at $99.82 a barrel in electronic trading on the New York Mercantile Exchange.

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AP Business Writer Joe McDonald contributed to this report from Beijing.