European bond auctions today and tomorrow (New Zealand time) will be crucial for the euro, which rallied yesterday but struggled to hold on to gains, given the nervousness about the heavy schedule of debt issuance due this week.
Portugal is scheduled to sell up to 1.25 billion in an auction that will signal whether the indebted country will be able to raise funds in the debt market or be forced to take a bailout.
Helping calm some nerves over the eurozone debt crisis ahead of a bond auction, Portuguese Prime Minister Jose Socrates said Lisbon had no plans to seek aid after what he said were "excellent" budget execution results for 2010.
Investors also took comfort from news that Japan was considering buying about 20% of eurozone bonds to be jointly issued later in January to raise funds to support debt-swamped Ireland.
"The news will surely have a calming effect on bond markets today," analysts at Commerzbank wrote in a note, adding that although Asian support may be positive in the short term, it by no means guarantees restoring investor trust in the market.
Craigs Investment Partners broker Chris Timms said Italy and Spain would go to the bond market tomorrow in auctions that would be watched for any sign of contagion.
"Given that there are a lot of issues still unsettled with the European debt crisis, which is likely to continue for many months, there's always going to be pressure on the euro."
China had earlier assured Spain it would invest in the Spanish state bonds but the support from Japan for Ireland looked likely to come from existing euro reserves and would not form any increase in the allocation of the euro, he said.
More important was the final decision by Germany on how the Portuguese and Spanish debt would be handled.
"Germany is forcing its will on smaller European economies, because it is the strongest and its economy is doing well. Germany is a heavy influence in Europe."
Japan and China could afford to buy into the indebted eurozone economies as they were two of the few countries in the world running surpluses, Mr Timms said.
They were prepared to buy the bonds at elevated yields because both Asian countries had the confidence they would be repaid and that the sovereign debt would not default.
There was too much government stimulus money in play for the bonds to fail, he said.
"It's a practical response as well.
"Europe is a key export market for China and they need stability. When you talk about globalisation, you have to realise how closely interlinked we all are."
Also, China was proving to be a "good global citizen" by trying to stabilise the eurozone.
It was also overweighted in United States Treasury bills and this was an opportunity for it to diversify, Mr Timms said.
The bond auction would let the markets decide whether Portugal, Spain and Italy had enough austerity measures in place - or the ability to raise taxes - to repay the debt, he said.
