European stocks and the euro were under pressure on Monday in the wake of a fresh rating agency warning on the euro zone debt crisis, while news of the death of North Korean leader Kim Jong-il sparked fears of regional instability in Asia.

MSCI's world equity index <.MIWD00000PUS> was down around 0.5 percent, while the key FTSE Eurofirst 300 <.FTEU3> opened 0.6 percent lower with other major regional indexes also down. In Asia, South Korea's benchmark index hit a three-week closing low, down 3.4 percent, having fallen as much as 5 percent earlier. <.KS11>

The euro was about 0.1 percent lower at $1.3022, not far from an 11-month low of $1.2944 hit last week, on fears that ratings downgrades for several European countries could derail progress towards resolving the euro zone's debt crisis.

In Asia investors sought the dollar as a safe haven when news of the North Korean leader's death broke, but by 0815 GMT the U.S. dollar index, which tracks the greenback against a basket of currencies, had given up its gains and was flat around 80.25.

It is hard to predict how things in North Korea will develop from here this time. The news comes at a time when financial markets had already been in fragile shape, said Bae Sung-young, a market analyst at Hyundai Securities.

That fragility was highlighted on Friday when Fitch Ratings warned it may downgrade France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was technically and politically beyond reach.

German government bonds were steady early on Monday, supported by some safe-haven buying linked to the death of the North Korean leader and the ratings agency warnings.

While credit downgrades are anticipated, trade is expected to thin out ahead of the Christmas holidays.

Markets are expected to monitor the outcome of a euro zone finance ministers' teleconference from 1430 GMT on Monday.

Commodities, already under pressure due to Europe's sovereign debt crisis, also fell on the North Korean news, with Brent crude off 0.6 percent at about $102.75 a barrel. Gold, usually regarded as a safe-haven asset in times of uncertainty, recovered from losses seen in Asia was steady at $1,591.59 an ounce.

(Editing by Hugh Lawson)

South Korea