World stocks remained troubled by worries over Greek debt on Tuesday after Germany demanded new austerity measures, offsetting strong U.S. earnings, and driving down the euro on contagion fears.

On Monday Germany's Chancellor Angela Merkel had said that Greece must commit to further painful savings measures and show that it can return to a sustainable economic path before Germany can approve aid.

Greece is hoping that the 45 billion euro ($59.97 billion) aid package from the European Union and the International Monetary Fund will arrive in time to finance a debt roll-over on May 19, but Merkel's comments created market jitters as the timing for approving the package now looks tight.

Fears of a Greek default and contagion within the euro zone prompted a sell-off in both Greek and Portuguese bonds.

The Greek/German 10-year bond yield spread widened to a new 12-year high of 687 basis points, indicating the higher premiums demanded by investors to hold Greek debt.

The fear of further contagion may focus politicians' minds as the various countries go through the process of approving the Greek bail-out package, suggested Gary Jenkins, an analyst at Evolution Securities in a note.

This may work in Greece's favor in obtaining funds in the short term as it is evident that a disorderly default could lead to a meltdown in the markets for the likes of Portugal.

The cost of insuring Greek debt from default rose, with the 5-year credit default swap widening out to a new record high of 718 basis points, from 708 basis points at Monday's New York close, according to CMA DataVision.

The cost of insuring Portuguese debt from default also widened, to a record high of 316.6 basis points for the 5-year CDS, from 311 basis points at Monday's New York close, said CMA DataVision.

Investor worry over Greece offset strong results in the U.S., with 10 out of 12 S&P 500 companies that reported on Monday beating earnings per share estimates and nine of those beating revenue estimates.

Both heavy machinery maker Caterpillar Inc and white goods manufacturer Whirlpool Corp delivered strong earnings reports and sales forecasts overnight.

World stocks as measured by the MSCI All-Country World index were down 0.26 percent, while its more volatile emerging markets component, the MSCI Emerging Markets Index <.MSCI EF>, was down 0.59 percent.

The pan-European FTSEurofirst 300 <.FTEU3> of top European shares was down 0.84 percent in early trading, halting a sharp two-day rally.

Earlier in Japan, the Nikkei <.N225> closed up 0.42 percent, with investors focusing on individual stocks that reported better-than-expected profits or revised earnings guidance.

EURO SLIPS

The euro slipped 0.34 percent to $1.335, down nearly 7 percent in the year to date. Analysts said that signs of cracks in the euro system would keep it under selling pressure.

Indications from euro zone members are that aid will be provided, but there remain uncertainties about the terms, said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.

The trouble of not having a set-up to deal with these problems while other euro zone countries may be facing issues is a concern to the market.

The low-yielding Japanese yen rose broadly, boosted as concerns about euro zone debt problems raised general risk aversion, a situation that often benefits the yen.

The dollar slipped 0.1 percent to 93.84 yen.

(Editing by Stephen Nisbet)

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