Asian stocks fell from near seven-week highs on Monday as a currency spat between China and the United States and worries about sovereign debt combined to keep investors away from riskier assets.

Markets were also cautious before U.S. and Japanese central bank meetings later this week. Both are expected to keep monetary policies super loose, with a chance of even further easing in Japan, which has kept the yen on the defensive.

The wary mood looked set to carry over into European trade, where investors grappled with more on-again, off-again media reports of European help for debt-laden Greece.

Financial spreadbetters expected Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI> and France's CAC-40 <.FCHI> to open as much as 12 points lower.

The market moves seen today can be best described as jittery, analysts at Westpac said in a note.

China's Premier Wen Jiabao weekend comments on the yuan and economy left traders in little doubt that the current 'dirty peg' wasn't going anywhere fast - at least not today.

Wen said on Sunday the yuan was not undervalued, and rejected international calls to allow the currency to rise. He also said there was a chance the world economy may suffer a double-dip recession as conditions in some countries remain weak.

A report from credit agency Moody's on Monday about ballooning government debt further backed the case for investors to play it safe.

This was despite Moody's saying the UK and the United States, whose debt affordability is currently the most stretched, have the ability to mend their balance sheets.

MSCI's index of Asian shares outside Japan <.MIAPJ0000PUS> quickly shed early gains to fall 1 percent by mid-afternoon while Japan's Nikke <.N225> ended flat.

China shares <.SSEC> led losses in the region, retreating 1.2 percent on persistent fears that Beijing will continue to tighten liquidity to fight accelerating inflation.

Fears of more policy tightening in China also weighed on stocks in Hong Kong, where the Hang Seng index <.HSI> dropped 0.9 percent.

A report on Friday showing U.S. consumer sentiment edged lower in early March added to the unease in Asian markets, overshadowing other data which showed February retail sales rose unexpectedly.

Investors see no opportunities to make a profit under current market conditions and many are choosing to get out for the time being or to stay on the sidelines, making trade very sluggish, said a senior trader at a major Chinese brokerage in Shanghai.

Monday's move away from risky trades kept with a broader trend in the market this year, which has showed investors favoring safety over risk.

The U.S. dollar and yen, the typical haven bets, are up 2.7 percent and 2.6 percent respectively since January. Like-wise, gold, another favorite safety play, is up 1.1 percent. In contrast, the Asian ex-Japan MSCI stock index is down 1.2 percent for the year.

Oil prices fell 50 cents to $80.76 a barrel, while Shanghai copper prices lost nearly 2 percent on worries about more Chinese policy tightening and its potential impact on the country's voracious demand for raw materials and commodities.

U.S. Treasuries edged higher, though gains were checked by uncertainty ahead of the Federal Reserve's policy meeting, which concludes on Tuesday.

Economists widely expect the Fed to repeat its pledge to keep interest rates exceptionally low for an extended period to give the economy more time to heal, and will be looking for any comments on unemployment and the prospects for further recovery.

The U.S. dollar rose broadly on Monday as a drop in Asian stocks prompted some investors to shy away from riskier assets such as the euro and sterling, which have been hit by sovereign debt concerns.

The dollar index <.DXY> rose 0.1 percent from late New York trade on Friday to 79.961, hovering above its short-term support level at around 79.60.

The euro, beset by Greece's fiscal problems, fell 0.3 percent to $1.3733. There were few signs that the selling pressure will abate soon with the latest data showing bets against the euro were at a record.

Euro zone ministers meet on Monday to discuss ways to assist Greece should it be unable to finance its debt, but no concrete proposals were expected.

The yen slipped to 90.64 yen per dollar, from 90.42 late in New York on Friday.

The yen managed to bounce off three-week lows against the U.S. dollar, but stayed on the defensive on expectations the Bank of Japan may further ease policy this week to weaken its currency and boost exports.

High-yielding currencies also suffered from the pause in risk appetite. The Australian dollar slid to $0.9143, well off the day's high of $.9209.

(Additional reporting by Lu Jianxin)

(Editing by Kim Cohill)

Germany Japan United kingdom Westpac