The euro hit an 11-month high against the dollar on Monday on fading prospects of an interest rate cut in Europe, while world equity markets ticked lower following gains that took them to more than one-year highs.
US investors took profits as they awaited an onslaught of corporate earnings reports, which many analysts worry will be weak following the uncertainty from the recent fiscal impasse in Washington.
While US and European equity markets were mostly lower, shares in China soared 3.2 per cent, advancing to a 52-week high on strength in financial and property companies, which rose on a report that the roll-out of a pilot property tax scheme could be delayed.
Apple Inc, the most valuable US company, added to the earnings concerns after a report it had cut orders for LCD screens and other parts for the iPhone 5 this quarter due to weak demand. The stock fell 3.5 per cent to $US502.21, weighing on the broader market.
"I think there's going to be more misses than hits in terms of revenue and margins. It's going to be a little bit light this earnings season compared to the last one," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
The Dow Jones industrial average was up 0.73 point, or 0.01 per cent, at 13,489.16. The Standard & Poor's 500 Index was down 4.34 points, or 0.29 per cent, at 1,467.71. The Nasdaq Composite Index was down 16.51 points, or 0.53 per cent, at 3,109.13.
The euro was up 0.2 per cent at $US1.3365, having hit a high of $US1.3404 earlier for a hefty 2.5 per cent jump since European Central Bank President Mario Draghi dampened expectations of further monetary policy easing in the near term.
The dollar's value against a basket of major currencies floated around its lowest levels since the start of the year.
Europe's FTSE Eurofirst 300 index of top companies closed down 0.3 per cent, though it remains near a two-year high. The MSCI International ACWI price index of global shares was 0.1 per cent lower and still near an 18-month high.
Equity markets have risen and most major currencies have gained against the dollar so far this year after US lawmakers struck a deal on taxes, easing fears of a sudden fiscal tightening that would slow the economy.
Chicago Federal Reserve chief Charles Evans, a voting member of the Fed's policymaking committee this year, underlined the better outlook by forecasting the US economy would grow 2.5 per cent in 2013 and 3.5 per cent in 2014.
Evans added that markets could be confident the US central bank would take action to boost the recovery without letting inflation take hold, although he did not refer to any more Fed easing, which would weaken the dollar further.
In another sign of an improving US outlook, US-based equity mutual funds posted their biggest weekly inflow in more than 11 years last week, a sign that stocks are coming back into favor. The S&P 500 is up 3 per cent thus far in 2013.
The picture overseas has also been brighter, with a pick-up in Chinese data and Japan, the third-largest economy, embarking on a new strategy to lift itself out of recession. The move weakened the yen substantially but boosted Tokyo stocks.
The benchmark 10-year US Treasury note was up 2/32, the yield at 1.8589 per cent.
Fed Chairman Ben Bernanke will speak on the outlook later in the day and investors will scrutinize his remarks for any clues on how much longer the Fed's bond purchase program will last.
Any suggestion that the Fed is in no hurry to end its quantitative easing program would probably lead to the dollar softening further against higher-yielding currencies such as the Australian dollar and those of faster-growing emerging economies.
The Japanese yen was flat at 89.17 yen against the dollar. Previously, the currency touched a 2-1/2-year low on expectations that a round of aggressive monetary easing is coming soon in Japan.
Prime Minister Shinzo Abe reiterated on Sunday his calls for the Bank of Japan to set a 2 per cent inflation target and pursue bolder monetary easing to end nearly two decades of deflation.
Abe, who has already announced a huge budget stimulus for the Japanese economy, said he would appoint a new head of the central bank who shares his views when Governor Masaaki Shirakawa's term ends in April.
"The confirmation that there's going to be a push for a new governor (and) that new governor is going to have a mandate of 2 per cent inflation - that plus the fiscal stimulus is a major negative for the yen," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
Tokyo markets were closed on Monday for a holiday but MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent on the statement, remaining near a 17-month peak set on Friday.
The growing optimism on the outlook for the world's biggest economies helped commodity prices recover from last week's decline. Oil also benefited from a resurfacing of fears about a disruption of supply from the Middle East.
A cut in Saudi Arabian production last month, pipeline sabotage in Yemen and a weather-related drop in Iraqi shipments have reduced output, while fighting in Syria and Iranian naval exercises in the Strait of Hormuz reminded investors of the risk of wider disruption to Middle East supply.
Brent crude gained 0.4 per cent to $US111 a barrel while US crude was flat at $US93.55 a barrel.
Copper edged down 0.6 per cent to $US7,998.75 a tonne and gold rose modestly.