"The US stock market is going to remain beholden to headlines out of Europe for a while," said Dick Green of Briefing.com.
"There was no hard news from politicians, although there are indications that Germany may be softening its stance on European-wide solutions."
There were big falls on world markets on Friday, after news that employers in the United States added only 69,000 jobs in May, the fewest in a year and not even close to what economists expected. For the first time since June, the unemployment rate rose, to 8.2 percent from 8.1 percent.
It was the third month in a row of weak job growth and further evidence that, just as in 2010 and 2011, a winter of hope for the economy has turned to a spring of disappointment.
Goldman Sachs Group's chief US equity strategist David Kostin told Bloomberg this morning that a worsening crisis in Europe has the potential to drive US stocks into a bear market.
One of the major talking points on world currency markets overnight was the rise in the euro, which gained from a two-year low against the greenback and a more-than decade-low against the yen as various technical measures it was due for a bounce. But traders aren't yet convinced.
So-called net shorts betting the euro will fall against the US dollar rose to a record 203,415 contracts in the week ended May 29, Bloomberg reported, citing Commodity Futures Trading Commission data. The 14-day relative strength index of the euro was at 14 last week on a scale where a reading below 20 means a currency is poised to rise.
Momentum has been against the euro since early May amid renewed concerns about the weakness of the region's banks, lacklustre economic figures and signs citizens of Greece, Spain and France were pushing back against austerity measures.
Plans to use the euro zone's bailout fund to rescue the region's banks, which has garnered support from both the European Commission and France, gave traders their latest glimmer of hope. Group of Seven leaders are scheduled to hold a conference call on Tuesday to discuss the debt crisis, with Spain likely to be top of the agenda.
German Chancellor Angela Merkel has called for a greater level of fiscal union, beefing up the powers of the European Commission and creating a single authority to manage the euro zone's finances. While Germany is the region's financial powerhouse and effective underwriter, debt laden nations are likely to bridle at suggestions for reform of tax, labour markets and welfare.
Still, Spanish Prime Minister Mariano Rajoy backed the idea of a central authority in the region to oversee fiscal policy and European Central Bank member Ewald Nowotny is among officials to say European banking union may have merit.
A proposal would be put to EU leaders at their summit at the end of this month, Reuters reported.
The euro traded recently at $1.2497, having sunk to $1.2288 on Friday in New York, the lowest since July 2010. The common currency strengthened to 97.84 yen, having touched 95.57 yen on Friday, the lowest since late 2000. Strategists said they've seen such bounces before.
"We would not put any real faith in a euro/dollar low having been set at this stage," Gareth Sylvester, director at Klarity FX in San Francisco, told Reuters. "We would really need to see a break back above $1.2625/35 to begin to suggest that a short-term low had been seen and prompt a deeper correction."
The euro's advance so far this week has come as London, the busiest centre for currency trading, is closed for Queen Elizabeth II's diamond jubilee celebrations, leaving the US to set the tone.
-with AFP
