Gold and the Swiss franc hit record highs on Monday with further gains likely as the lack of any breakthrough to the escalating debt crisis in the euro zone and the United States saps demand for risky assets.

A looming U.S. debt default, Greece's future in the eurozone ahead of a special summit on Thursday and the underwhelming market reaction to the European bank stress test suggest investors will keep increasing their exposure to cash and other safe-haven assets this week at the cost of equities.

Even though Asian markets have remained largely resilient to the latest flare-up in the ongoing euro zone debt crisis, a U.S. debt default or the euro zone debt crisis engulfing one of its major economies like Italy or Spain could trigger sharp outflows from emerging markets.

Trading in Asia was largely quiet with Japan out for a holiday though some choppiness across markets and a firm bid for gold underscored the overall nervousness.

With five days remaining before President Barack Obama's Friday deadline for a deal to raise the U.S. debt ceiling, Republicans and Democrats have yet to agree on a big plan to cut the nation's deficit and raise its debt limit in time to avoid an unprecedented U.S. default.

LOSING CONFIDENCE

Investors are gradually losing confidence as the U.S. debt ceiling date nears and even though we expect a last-minute deal to materialize, this kind of behavior is making markets very nervous, said Adrian Foster, head of financial markets research -Asia Pacific at Rabobank International in Hong Kong.

While we may see some technical bounces in some asset classes, sentiment is likely to remain cautious, he said.

Reflecting those worries, the greenback fell to as low as 0.8034 against the Swiss franc on EBS, against 0.8129 late on Friday, before settling higher.

The euro extended its slide against the Swiss franc, gapping to a record low of 1.1365 in early Asian trade on Monday according to dealers, down from 1.1501 late in New York on Friday.

It has fallen by more than seven percent in the last 10 trading sessions.

Gold -- which has been one of the few bright spots in a gloomy July so far -- stretched its winning streak to a 11th session, the longest it has seen since at least August 1970.

The SPDR Gold ETF has been among the top performing asset classes in the last three months, gaining nearly seven percent.

NOT RIGOROUS ENOUGH

Even the better-than-expected results of a stress test conducted by the European Banking Authority on Friday failed to dispel the broader gloom sweeping across markets.

The European Banking Authority (EBA) said that eight of 90 European banks had failed stress tests performed to determine if they could withstand a long recession. Expectations were for up to 15 banks to fall short.

The tests did not factor in the possible impact of a sovereign Greek default, which most economists expect to happen in some form. JP Morgan's Kian Abouhossein said Europe's banks would be 80 billion euros short of funds in a tougher test of their health, more than 30 times the amount demanded in the official test.

With the stress results out of the way, market focus would switch right back to a planned summit in Brussels on Thursday where euro zone leaders would discuss the rescue of Greece.

For now, risky assets are on the back foot.

Equities extended losses after suffering their biggest weekly loss since February with the MSCI index of shares ex-Japan <.MIAPJ0000PUS> down 0.5 percent. It fell 3.1 percent last week.

Stock markets in Seoul <.KS11>, Australia <.AXJO> and Taiwan were trading in the red with losses in the latter led by electronics and steel sectors.

Mirroring weaker Asian equities, European markets are expected to open in the red with main European indices set to open between 0.4 to 0.7 percent, lower according to financial spreadbetters.

Corporate results will be in focus this week with Wall Street giants like Goldman Sachs, Bank of America Merrill Lynch, Apple, GE and IBM set to report earnings.

In bond markets, U.S. Treasury yields rose to 2.98 percent, rising from a seven-month low of 2.82 percent hit last Tuesday as investors remained nervous about the risk of the world's biggest bond market losing its much-prized AAA rating.

U.S. crude for August delivery held on to last week's gains at above $97.28 per barrel due to some short covering and lower supplies.

Gold