Asian markets mostly rose on Tuesday, rebounding from a heavy sell-off the previous day, while there was some relief from news that Chinese manufacturing activity hit a five-month high in July.
Investors reversed earlier losses that were fuelled by renewed concerns that the weight of eurozone sovereign debt would force Spain to seek a full state bailout.
However, trade remained cautious after ratings agency Moody's downgraded its outlook for Germany, delivering a stark warning that not even Europe's largest and most pivotal economy was immune from the rolling crisis.
Tokyo ended 0.24 percent, or 20.23 points, lower at 8,488.09, but Seoul added 0.25 percent, or 4.49 points, to 1,793.93 and Sydney climbed 0.10 percent, or 4.3 points, to 4,133.2.
Hong Kong, which opened at 1:00 pm (0500 GMT) after a severe typhoon hit the southern Chinese business hub, was 0.21 percent higher and Shanghai advanced 0.35 percent.
In Europe the focus is now on Spain, which saw its borrowing costs on Monday climb to a high considered unsustainable, sparking fears that the eurozone's fourth-largest economy may require a bailout.
The yield -- the rate of return investors earn -- on the benchmark Spanish 10-year government bond jumped to 7.498 percent from 7.225 percent on Friday, well above the 7.0 percent danger level for long-term funding.
Madrid's troubles sent global markets spiralling downward on Monday amid fears of another economic downturn.
Adding to the gloom was news that Moody's Investors Services revised to negative from stable its outlook on the sovereign ratings of Germany, the Netherlands and Luxembourg.
Eyes were also on Greece, with auditors from the European Union, International Monetary Fund and the European Central Bank due in Athens this week for another inspection of the new government's economic programme.
The report will determine whether Greece will receive fresh loans of 31.5 billion euros by September due under its debt rescue programme.
In the United States, the Dow Jones Industrial Average fell 0.79 percent, while European stocks took a pummelling, with London's benchmark FTSE 100 index of top companies down 2.09 percent and the DAX 30 in Frankfurt losing 3.18 percent.
However, there was a little respite from the recent bad news, with banking giant HSBC saying that its Purchasing Managers' Index (PMI) for July -- which measures manufacturing activity -- had hit a five-month high this month.
The preliminary figures hit 49.5 in July, well up from the 48.2 recorded in June, which HSBC said indicated that government measures to boost economic growth, including interest rate cuts, were working.
A PMI reading above 50 indicates expansion, while a reading below 50 points indicates contraction, and while the data is negative it provides some hope that the country's manufacturing sector is heading in the right direction.
On currency markets the euro, which hit a 12-year low against the yen on Monday, bought $1.2110 and 94.80 yen in Tokyo morning trade, down from $1.2137 and 95.13 yen in New York.
However it was an improvement from Asian trade Monday when it dropped to 94.24 yen, its lowest level since November 2000.
The dollar traded at 78.30 yen, against 78.37 yen on Monday, as the Japanese currency is increasingly seen as a safe-haven unit amid turmoil in Europe and an uncertain US economic recovery.
The swings on the currency markets came as Japan's Finance Minister Jun Azumi repeated warnings about the yen's soaring value and hinted at another possible currency market intervention in a bid to tame the unit.
"We will not rule out any measures against excessive moves and will take decisive action when that's deemed necessary," he told reporters.
Oil was on the up. New York's main contract, light sweet crude for September delivery, gained 73 cents to $88.87 a barrel in afternoon trade and Brent North Sea crude for delivery in September was $1.10 higher at $104.36.
Gold was at $1,576.40 at 0620 GMT from $1,571.22 on Monday.
In other markets:
-- Taipei fell 0.29 percent, or 20.38 points, to 7,008.35.
Leading smartphone maker HTC shed 2.26 percent to close at Tw$280.5 while Taiwan Semiconductor Manufacturing Co was 0.67 percent higher at Tw$74.8.
-- Wellington eased 0.13 percent, or 4.66 points, to 3,460.70.
Telecom lost 0.6 percent to NZ$2.525, Air New Zealand was up 0.55 percent at NZ$0.91 and Fletcher Building was steady at NZ$5.81.
