World stocks held steady below a recent two-year high on Monday while the euro hit a two-week low as concerns over the euro zone debt crisis persisted following last week's Irish rating downgrade.

Tensions in Korea also made investors wary. Despite threats of war by Pyongyang, South Korea launched live-fire drills on a disputed island after an emergency U.N. Security Council meeting failed to agree on how to defuse the crisis.

Last week's five-notch credit rating downgrades of Ireland by moody's and the absence of immediate steps from European leaders to contain the crisis weighed on the single currency while supporting German government bonds.

The ratings change at the end of last week is still keeping the euro under selling pressure, said Carl Hammer, currency strategist at SEB in Stockholm.

There is an underlying uncertainty with regards to the euro zone which is very much in focus. The MSCI world equity index and the Thomson Reuters global stock index were steady on the day.

The FTSEurofirst 300 index rose half a percent, boosted by energy shares, while Asian shares fell a third of a percent.

Emerging stocks lost a quarter percent.

U.S. crude oil rose 0.1 percent to $88.12 a barrel as freezing temperatures in Europe and the U.S. Northeast looked set to boost demand for heating fuel.

Bund futures rose 77 ticks, with the tensions in Korea supporting flows to safe-haven assets.

The euro fell as low as $1.3125 before trimming losses to $1.3160.

The lack of any substantive plan to bulk up the (European stabilization fund) or provide an alternative crisis management system has kept the market euro negative as the downgrades keep rolling in from Moody's on Ireland, Spain etc, Lloyds TSB said in a note to clients.

While there may well be something more forthcoming over the next few weeks, for the moment the market is likely to see this as a green light to sell the euro, suggesting risks of a break below $1.30 in euro/dollar this week.

The dollar was steady against a basket of major currencies.

The Korean won briefly hit a four-week low against the dollar after South Korea's drills.

(Additional reporting by Naomi Tajitsu; Editing by John Stonestreet)

South Korea