The euro was down 0.21 percent at $1.3033 by 0715 GMT. Safe-haven German government bond prices edged higher and nudged up Spanish and Italian 10-year bond yields.

"Moody's cut Catalunya amongst other Spanish regions so there's a bit of bad news out there and we're seeing a bit of a bid for Bunds," one bond trader said.

Spain will sell three and six-month debt later on Tuesday.

Disappointing company results from the United States on Monday, cast a shadow over share markets. Heavy-equipment maker Caterpillar Inc (CAT.N) slashed its earnings forecast, adding to the recent warnings of weakness from bellwethers such as General Electric and Microsoft.

European shares .FTEU3, which ended Monday down 0.4 percent, buckled after an early push to stand 0.2 percent lower. Following falls in Asia, the MSCI index of world shares .MIWD00000PUS was down 0.18 percent.

London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were all lower .L .EU .N, while U.S. stock futures pointed to a soft Wall Street open.

In the currency market the yen hit a three-month low against the dollar and a five-month trough versus the euro on belief that the Bank of Japan will further loosen policy later this month.

"Generally speaking, expectations for a BOJ easing help push the dollar up against the yen, but the effect on the economy from easing is limited. It's more to do with recent market flows which have been pointing to a weaker yen," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

Several central banks hold policy meeting this week, including the U.S. Federal Reserve, the Bank of Canada and the Reserve Bank of New Zealand. All of them are expected to keep rates on hold but may offer dovish statements, Barclays Capital said in a research note.

(Additional reporting by Emelia Sithole-Matarise; editing by Anna Willard)

• A Permanent Economic Emergency