Crisis in rising yields

The euro was at $1.2126, off a 25-month low of $1.2067 hit on Monday, and stood at 94.87 yen, barely above its lowest since November 2000 of around 94.23 yen marked on Monday.

Downside pressures remained strong for the euro, with euro zone manufacturing data due later on Tuesday likely to confirm growth deteriorating further.

Greece, which only last month staved off a deeper crisis by having pro-bailout parties win an election, was also scheduled on Tuesday to meet its troika of creditors - the European Union, European Central Bank and the International Monetary Fund - to renegotiate rescue payments that are crucial to keeping indebted Athens afloat and within the euro zone.

Fears about Spain possibly needing a fully-fledged bailout intensified investor flight to safety and pushed the 10-year US Treasury yield down to a record low 1.3977 percent, while five- and 10-year German government bond yields also set new lows on Monday.

In contrast, Spanish 10-year borrowing costs surged to a euro-era high above 7.5 percent on Monday.

Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, said the flattening of the Spanish yield curve reflected how investors have grown increasingly concerned about perceived risks facing Spain.

"Rising yields are in turn adding to a sense of crisis: If the regions ask for cash, how will the government fund itself? The brave Spanish matador appears to be pinned to the perimeter fence by the angry bull," Wilkinson said.

Spain faces a litmus test later on Tuesday with debt sale of 3 billion euros in 3- and 6-month bills.

Asian credit markets recovered slightly as other assets trimmed losses, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by just 1 basis point.

Gold was capped, up 0.1 percent at $1,577.55 an ounce, with both its 55- and 100-day moving averages having crossed below the 200-day moving average in April to imply a bearish technical outlook. Analysts expect gold to find support at its 2012 low near $1,521 and resistance at $1,641.