The euro approached a four-year low against the dollar on Thursday on a newspaper report that China was examining its investments in euro zone debt, while bargain-hunting gave some support to Asian stocks.

Investors were cautious to stay away from risky assets amid persistent jitters over Europe's debt crisis.

The euro hovered near $1.2220 after dropping 1.5 percent the previous day, just above a four-year low of $1.2143 hit last week.

The Financial Times reported that China is reviewing its euro zone bond holdings because it is increasingly worried about gaping deficits in euro member countries. The story stoked investor worries that the debt crisis could reverse the global economic recovery.

The euro has lost more than 8 percent against the dollar so far this month and is heading for its biggest monthly fall since October 2008.

The euro inched up to 110 yen after falling to the day's low at 109.20 yen. It struck an 8-1/2-year low of 108.83 yen earlier this week.

The FT report fed broad risk aversion and hit U.S. stocks on Wednesday. The Dow Jones industrial average <.DJI> closing below 10,000 for the first time since early February.

The MSCI index of Asia Pacific stocks outside Japan inched up 0.6 percent <.MIAPJ0000PUS>, a day after a 2.5 percent rally from a nine-month low as investors sought beaten down stocks.

Since peaking in the latest bull market rally on April 15, Asian stocks have fallen nearly 18 percent, just short of a 20 percent mark usually defining a bear market.

Seoul shares <.KS11> edged up 0.7 percent as steady domestic buying lent the market support, but the FT's report on China sent financial stocks lower.

The market is trying to make a technical rebound as it fell sharply over the past week, but it is difficult given deepening euro zone fears and heightened North Korea risks, said Lee Jin-woo, a market analyst at Mirae Asset Securities.

Japan's Nikkei share average <.N225> fell as much as 1.3 percent to a six-month low but later pared falls as investors picked up battered shares, though market players said the overall bias remains toward cutting risks.

The market is paying now after it underestimated the seriousness of the problems in southern Europe for a while. The news about China's move is one example underlining the gravity of the problems, said Fumiyuki Nakanishi, a manager at SMBC Friend Securities.

Foreign investors are cutting back on riskier assets in their portfolios. Upbeat corporate earnings prospects don't figure in the equation much at this point.

Gold ticked higher as worries about Europe's debt woes attracted buying from investors trying to avoid risk.

Spot gold gained 0.4 percent to $1,214.45 an ounce. Gold hit a record high of $1,248.95 in mid-May as investors ditched the euro on fears that euro zone austerity policies could undermine the global economic recovery.

Meanwhile, oil shed a quarter of a percent to $71.33 a barrel as concern about Europe's debt crisis and falling stock markets outweighed data showing U.S. demand is surging.

(Additional reporting by Aiko Hayashi in TOKYO and Jungyoun Park in SEOUL; Editing by Jan Dahinten)

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