European shares fell and the euro eased to a 3-week low on Thursday as a delay in a decision on a crucial bailout for Greece unnerved investors and prompted a halt in the rally for riskier assets like equities that has marked the start of 2012.
A three-hour teleconference between euro zone finance ministers late on Wednesday failed to resolve all the issues surrounding a second aid package for Athens, putting off any decision on the matter until February 20 at the earliest.
Although investors still broadly expect a deal to be done, suggestions that the EU is looking at ways to drip-feed the support it provides to Greece indicates Athens has exhausted its reserves of goodwill with its European partners.
"There are no answers on how Greece will be treated ... If there is no resolution it poses risks for the euro," said Carl Hammer, chief currency strategist at SEB in Stockholm.
In response the euro slid 0.5% to $1.2997 and could target its mid-January low of $1.2624.
The rising risk aversion buoyed the safe-haven US dollar, with the dollar index hitting a three-week high of 80.078 as the greenback rose to a 3-1/2 month high of 78.79 yen.
Several sources told Reuters euro zone finance officials are now examining ways of delaying part or even all of the second bailout programme, even if a deal is agreed on Monday, while still avoiding a disorderly default.
European share markets retreated from Wednesday's six month highs as the Greek deal delay encouraged some investors to take profits, although a warning by ratings agency Moody's that it may downgrade 17 global and 114 European financial institutions also hit sentiment.
The FTSEurofirst index of top European companies opened down 0.7% at 1,067.80 points. After earlier falls in Asia, the MSCI world equity index was down 0.7%.
The deal delay sent Europe's main gauge of investor anxiety, the Euro STOXX 50 volatility index or VSTOXX, up 6% to a one-month high.
Debt crisis impact grows
The reverberations from the euro zone debt crisis and its impact on the global growth outlook continue to spread, with Sweden's central bank eased its monetary policy, citing the impact of the crisis on growth in the domestic economy.
In a widely expected move, the Riksbank cut its key interest rate by 25 basis points to 1.50%.
Since late December central banks in Europe, the US, Britain and Japan have announced measures to effectively take a more supportive stance to policy, with the European Central Bank pumping nearly half a trillion euros into the banking system.
China said on Thursday it was now working on detailed measures to support local exporters struggling to cope with weaker demand in major economies. The nation is very concerned about the dim trade outlook, a government spokesperson told a news conference.
Foreign direct investment in China also fell for the third straight month in January as the shaky global economic outlook undermines investment into the world's No. 2 economy.
Debt markets have reflected the nervousness over the delay in the Greek debt deal with a fall in yields for safe-haven German government bond and a rise for those of Spain and Italy, two nations also seen having precarious debt piles.
Spanish 10-year yields rose 19 basis points to 5.65%, the highest in a month, while equivalent Italian yields were up 20 basis points at a one-week high of 5.94%.
However, debt market investors are focused new supply with Spain attracting healthy demand at its sale of 4 billion euros of 2015 and 2019 bonds. France and the Netherlands are also due to offer new debt.