European share markets and the single currency staged modest recoveries on Tuesday, after steep losses caused by the worsening performance of the euro zone economy and a sharp rise in concern over the political will to fix its fiscal problems.

German bond yields also edged higher but remained near record lows, while demand for safe haven assets kept the Japanese yen well bid and gold stable.

The euro is now in an increasingly vulnerable position, in our view, as the economic, political and investment environment in Europe take a turn for the worse, analysts at Morgan Stanley warned its clients in a note.

The single currency is still trading within its recent range, gaining about 0.2 percent to $1.3180, but is off a two-week high of $1.3225 reached on Friday. The yen firmed against the dollar to be around 81 yen.

The outcome of two key debt auctions due later will be key to sentiment, with the Netherlands due to sell up to 2.5 billion euros of two- and 25-year bonds, while recession-hit Spain will raise a relatively small amount of short-term debt.

Global shares as measured by the MSCI world equity index were up 0.2 percent at 322.05 despite falls on Wall Street and in Asian markets caused by the increased tensions over Europe.

The FTSEurofirst 300 index of top companies rose 5.34 points, or 0.5 percent, at 1,027.10 in early trade, having dropped 2.3 percent to a three-month low on Monday.

Earlier Australian shares bucked the weaker trend in Asia, rising as much as 0.5 percent after a lower-than-expected inflation reading set the stage for an interest rate cut next week.

Morgan Stanley