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Asian shares on Thursday recovered a bit of the ground lost in the previous day's sell-off, but investors found no reason to bet on risk amid deepening turmoil in Greece and fears of contagion to other stressed euro zone economies.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent on short covering, after sliding more than 3 percent - its biggest one-day drop in six months - on Wednesday.
The index hit a new 4-month low on Wednesday, and has shed 9.6 percent since May 2.
Gold and the euro recovered from Wednesday's lows as a recovery in shares helped improve sentiment slightly.
Bucking the general trend of recovery in Asia-Pacific, Australian shares bucked the general recovery, falling 0.6 percent to a four-month low, with banks easing on more signs of pressure on margins.
Japan's Nikkei stock average was flat.
News on Wednesday that some Greek banks face emergency funding needs dealt a further blow to risk sentiment, already beaten down by worries about much slower economic growth in China, a fragile U.S. jobs market and the huge trading loss at JPMorgan Chase & Co, widely perceived to be excellent at risk management.
"May is typically a bear month for markets as players often look to take advantage of the saying, 'sell in May and go away,' but all the negative factors compounded to give momentum to sell risk assets indiscriminately," said Bob Takai, general manager of Sumitomo Corp's energy division.
"Pressures to shed financial premiums will likely persist for the next two to three quarters," he said.
The European Central Bank said it has stopped providing liquidity to some Greek banks that have not been successfully recapitalized, highlighting the weak state of the banking sector in the indebted country.
Greece on Wednesday put a senior judge in charge of an emergency government to lead the nation to its second election in just over a month on June 17. The vote will likely determine whether Greece remains in the common currency area.
The head of the World Bank warned on Wednesday that a decision by Greece to leave Europe's common currency zone would raise big questions about the impact on Spain, Italy and other euro zone countries with big debt loads that are undergoing structural reforms.
ANZ of Australia said in a research note that its baseline scenario was a 70 percent probability of the euro zone staying intact and a 50 percent probability of a policy shift to growth over austerity, giving some support to risk assets and the euro.
It put the chance of a disorderly exit at 4 percent and the likelihood of a total break-up of the euro zone at just 1 percent.
Stress levels eased slightly but remained high in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing 4 basis points to hover just below its widest since mid-January.
The euro added 0.2 percent at $1.2743, off a four-month low of $1.26811 reached on Wednesday, and the Australian dollar, typically linked to risk appetite, also rose 0.2 percent to $0.9936, having hit a five-month low of $0.9870 on Wednesday.
The dollar index measured against key currencies remained near a four-month high reached on Wednesday, as investors favored safe havens.
Uncertainty about Greece's future in the euro nudged some indicators of money market stress higher on Wednesday, but they were still well below last year's levels given a banking system awash with central bank cash.
Three month euro/dollar cross currency basis swaps, which show funding stress when investors compete for dollars, widened to minus 54 basis points from around minus 46 bps in early May. It marked minus 167.5 in November when investors feared another credit crunch.
Oil regained ground, with U.S. crude futures up 0.5 percent at $93.24 a barrel, after settling down more than $1 on Wednesday. Brent futures, however, fell 0.3 percent to $109.46 a barrel on Thursday.
Spot gold also recovered from Wednesday's 4-1/2 month low of $1,527 an ounce to trade up 0.6 percent at $1,547.40 as bargain hunting set in.
Some positive economic news emerged from Japan, the world's third-largest economy, helping to sooth sentiment.
Japan's economy bounced back from a year-end lull in the first quarter, powering ahead of other major industrial nations, growing 1.0 percent in the January-March quarter, while growth in the final three months of 2011 was revised to flat from a 0.2 percent contraction, data showed on Thursday.
But overnight, minutes for the Federal Reserve's April meeting showed several members of the U.S. central bank's policy-setting committee had indicated that additional monetary policy accommodation could still be necessary given downside risks to a moderately expanding economy.