LONDON — World stocks edged down from the previous day's one-month high on Tuesday while the euro fell broadly as renewed concerns about Europe's banking sector encouraged investors to pause after a recent rally.
A Wall Street Journal report said Europe's recent "stress tests" of the strength of major banks underestimated some lenders' holdings of potentially risky government debt.
This helped rekindle concerns about the vulnerability of the sector after Germany's banking association said on Monday the country's 10 biggest banks may need 105 billion euros of additional capital.
Such worries prompted investors to consolidate their positions after an upbeat U.S. jobs report last Friday triggered a broad rally in risky assets.
"It's shedding more light on how effective the stress tests were and how much they revealed ... bringing those fears back on the table," said Commerzbank rate strategist David Schnautz.
MSCI world equity index fell 0.4%, after hitting the one-month peak on Tuesday. The Thomson Reuters global stock index lost a third of a%.
The FTSEurofirst 300 index dropped half a percent, led by banking shares such as Societe Generale. Wall Street reopens later after a Labor Day holiday on Monday.
The euro fell 0.6% to $1.2793 while it lost more than 1% to 107.10 yen.
Safe-haven assets were in demand. Bund futures rose 63 ticks while the U.S. 30-year Treasury bond gained a full point in price, driving its yield down 6.5 basis points to 3.729%.
"There is still is some doubt about economic growth in the second half," said Koen De Leus, economist at KBC Securities.
"We have just had a relief rally and investors are waiting to see what direction the economy is going to take in the second half."
Emerging stocks lost around a third of a percent.
Elsewhere, the dollar rose 0.4% against a basket of major currencies. U.S. crude oil fell 1.5% to $74.37 a barrel, in part weighed by a strong dollar.
The Bank of Japan held off on loosening monetary policy further on Tuesday but said it would take timely action when necessary, setting the stage for possible easing next month when there is clearer evidence of the strong yen's impact on the slowing economy.
However, BOJ Governor Masaaki Shirakawa's comment that monetary authorities cannot control foreign exchange rates encouraged some yen buying.
