The euro tumbled to a one-year low against the yen on Thursday and Asian stocks fell on fears that a potential downgrade of Greece's debt rating will worsen Europe's outlook and imperil the global economic recovery.

Standard & Poor's said overnight that it may still cut its rating on Greece by up to two notches within a month, citing downside risks that could complicate Athens' efforts to cut its massive deficit.

Moody's also told Reuters that Greece is still at risk of a downgrade if it deviates from its fiscal debt plan.

The warnings from the credit agencies weighed on the euro and prompted investors to sell riskier assets such as equities and move into safer bets such as the Japanese yen.

The euro dropped 1.2 percent against the yen to 120.48 yen and 0.5 percent against the U.S. dollar to $1.3464.

Major European stocks were expected to open as much as 0.5 percent lower, according to financial bookmakers, ahead of consumer and business sentiment readings for the region later in the day

U.S. stock futures fell 0.7 percent, after Wall Street rallied on Wednesday on comfort that Federal Reserve Chairman Ben Bernanke pledged to keep interest rates low for a long time, even though he offered a relatively somber assessment of the U.S. economy.

Mixed economic data from the United States and Europe in recent weeks have raised concern about whether the global recovery is losing steam, with the U.S. hamstrung by high unemployment and Greece testing EU unity and policymaking.

We have to look at the facts and whether the government of Greece is going to do what it has promised to do, Pierre Cailleteau, global head of sovereign ratings at Moody's Investors Service, said in an interview.

A small deviation would lead to a small downgrade and a large deviation, which we think is unlikely, would lead to a large downgrade, he said, referring to Greece's fiscal austerity measures.

Japan's Nikkei share average <.N225> fell 1 percent after an early rally fizzled, with the stronger yen hurting exporters.

Shares of Toyota Motor Corp <7203.T> slipped 0.2 percent after its chief apologized to consumers over massive vehicle recalls and pledged reforms to skeptical lawmakers at U.S. Congressional hearings. Toyota's U.S.-listed shares jumped 3.9 percent.

The market welcomed a rebound in U.S. stocks after news that the country will continue its low rate policy, said Yutaka Miura, a senior technical analyst at Mizuho Securities.

But we've seen a series of worse-than-expected economic data from America lately and uncertainty about the outlook for the U.S. economy is increasing.

The MSCI Asia ex-Japan index <.MIAPJ0000PUS> fell 1.4 percent, with defensive sectors such as utilities and telecommunications outperforming the broader market.

WATCHING A GREEK TRAGEDY

Bernanke's comment had little impact on today's trade, said a currency forwards dealer at a European bank in Singapore. Now the market is more anxious about the European zone fiscal woes, so the dollar got lifted up in early trade.

A report on U.S. new home sales on Wednesday highlighted how the recovery in the world's largest economy is not yet on solid ground. Sales slumped more than 11 percent to a record low, suggesting the sector at the epicenter of the financial crisis had yet to fully heal.

Bernanke's assessment of the economy was also grim, further curbing speculation of quicker policy tightening that had been spurred by last week's raising of the Fed discount rate.

He said a weak job market and tame inflation warrant low interest rates for an extended period, making clear policy tightening is some time away and boosting the Dow Jones Industrial average <.DJI> by 0.89 percent.

Investors will be looking to U.S. durable goods orders and jobs numbers later on Thursday for further clues on the health of its recovery.

Gold slid 0.4 percent to $1,092.60 an ounce, far from Wednesday's high of $1,107.95 and down 3 percent from Monday's peak above $1,130.

Oil prices fell 0.4 percent at $79.70 a barrel, off Wednesday's highs at $80.45, a level hit when stock markets rallied on the back of Bernanke's remarks despite a bearish report showing a build up in U.S. crude stockpiles.

The sudden change in investors' sentiment from risk loving to risk fearing is evidence that convictions in the market are low, especially with Europe's fiscal weak links still unresolved.

The euro has lost over 10 percent since late November as fiscal woes in Greece intensified in the past few months leading to a huge sell-off by investors.

The Greek situation remains fluid. So acrimonious discussions between Athens and Brussels could easily result in further near term euro slippage, Citi said in a note.

(Additional reporting by the TOKYO newsroom; Editing by Kim Coghill)

Japan Ben Bernanke