By Danny McCord
HONG KONG, May 23, 2012 (AFP) - Asian markets reversed the previous day's gains and the euro sank back towards four-month lows Wednesday after Greece's former premier warned there was a chance his country will exit the eurozone.
Lucas Papademos' comments came ahead of a European summit aimed at addressing Athens' debt crisis and tempered optimism after France and Germany said they would do whatever it takes to keep Greece in the bloc.
Wall Street provided an anaemic lead despite strong US housing data indicating a turnaround in the crucial sector, while a downgrade of Japan debt rating late Tuesday also weighed.
Tokyo fell 1.21 percent by the break, Hong Kong shed 1.54 percent, Sydney lost 1.26 percent, Seoul was 1.61 percent lower and Shanghai eased 0.17 percent.
European leaders will later in the day meet in Brussels to discuss solutions to the Greek crisis as the country prepares to hold a second general election on June 17.
Analysts fear a likely victory for anti-austerity parties will see Athens renege on its bailout terms and eventually leave the euro, which could have a knock-on effect for other troubled economies such as Spain and Italy.
Papademos, who stepped down this month, said in an interview with Dow Jones Newswires published Tuesday: "The risk of Greece leaving the euro is real."
He added that preparations were being made in case Greece exits the 17-nation currency union.
There were also concerns over Wednesday's summit after Germany reasserted its stance against eurobonds -- which would see nations guarantee each other's borrowings -- despite calls from other members, including France, to look at the plan.
The single currency fell to $1.2653 in early Tokyo trade, down from $1.2684 late Tuesday in New York and well off the $1.2815 touched on Monday.
It was also down at 101.28 yen from 101.45 yen.
The dollar was almost flat at 80.04 from 79.98 yen.
Junichi Ishikawa, forex analyst at IG Market Securities in Tokyo, said: "I personally don't think much will come out of the EU Summit that will drastically alter the situation in Greece or Spain."
In Japan traders were also absorbing Fitch's announcement it had cut the country's credit rating by two notches, and giving it a negative outlook, blaming "leisurely" efforts at shrinking its massive public debt.
The move follows similar downgrades by rival agencies Moody's and Standard & Poor's in the past year and a half.
And on Wednesday Tokyo posted a bigger-than-expected trade deficit of 520.3 billion yen ($6.5 billion) in April due to higher energy costs.
The deficit was larger than a shortfall of 477.7 billion yen registered in April 2011, a month after Japan was hit by a huge earthquake and tsunami.
On Wall Street the Dow and the S&P 500 index both ended flat despite getting an early fillip from news that existing US home sales rose 3.4 percent in April while prices continued to rise.
The tech-heavy Nasdaq lost 0.29 percent as investors dumped Facebook shares for a second straight day.
The social networking site has now tumbled 18.0 percent since its debut on Friday amid accusations that leading underwriters cut their projections days ahead of the initial public offering.
Oil prices eased. New York's main contract, West Texas Intermediate crude for delivery in July was down 60 cents to $91.25 per barrel while Brent North Sea crude for July shed 62 cents to $107.79 in morning trade.
Gold was $1,558.90 an ounce at 0310 GMT, compared with $1,577.80 late Tuesday.
dan/slb
