The drop in Bund yields and the euro came after the European Central Bank left emergency liquidity for Greek banks at current levels but increased the haircuts on the collateral it demands. That kept alive fears Greek banks will soon run out of cash and that Greece's problems will spread to other southern European countries.

Traders said the next 24 hours could be crucial. Euro-area leaders and Finance Ministers are meeting in Brussels to discuss Greece and a lack of progress could put pressure on the euro.

European Commission President Jean-Claude Juncker told the European Parliament on Tuesday Greece's government must come forward with proposals to resolve its debt crisis. He said he still opposed calls for Greece to exit the euro.

Since Athens missed a debt payment to its creditors and Greek voters rejected tough conditions for further bailouts, the euro has retreated from its mid-June highs of USD 1.14, but there has been no panic selling. One reason is expectation the ECB will take action, including more quantitative easing, to stabilise the market.

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