The report gave a boost to risk appetite, triggering demand for higher-yielding currencies such as the Australian and New Zealand dollars, which both rose sharply against the low- yielding yen.
Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, the Wall Street Journal reported, citing people familiar with the matter.
"There's quite a big risk premium in euro based on Greek default concerns, so if Germany lends more money to get them through to 2013, the chances of a disorderly restructuring further down the line become much reduced," said Adrian Schmidt, currency analyst at Lloyds Banking Group.
The euro rose one percent on the day to $1.4423, its highest in three weeks, with resistance under threat at $1.4454, the 50 percent retracement of this month's fall, followed by the 61.8 percent retracement of the same move at $1.4568, but scepticism remained over the sustainability of the euro rise.
The WSJ report was in line with the tone of comments by Berlin's finance minister last week, but substantial barriers appear to remain to the provision of extra financial help needed to deal with Greece's financing needs next year.
"I would fade this rally in the euro for now. Investors will be looking for a more lasting resolution to the Greek debt problems and our economists haven't ruled out the possibility of a voluntary restructuring involving private bondholders," said Valentin Marinov, currency strategist at Citi.
The European Union is racing to draft a second bailout package for Greece to release vital loans next month and avert the risk of it defaulting, EU officials said on Monday.
Jean-Claude Juncker, the chairman of euro zone finance ministers, said he was optimistic after discussing further aid for Athens with French President Nicolas Sarkozy in Paris.
Moves to plug a looming funding gap for 2012 and 2013 accelerated after the International Monetary Fund said last week it will withhold the next tranche of aid due on June 29 unless the EU guarantees to meet Athens' funding needs for next year.
The euro was further underpinned by data showing inflation in the euro zone remained well above the European Central Bank's two percent target in May, bolstering expectations that interest rates will likely be raised again in coming months.
YEN SLIPS
The dollar's index against a basket of currencies fell to its lowest level in three weeks, losing 0.6 percent to 74.519 , hit by the euro's rally and better sentiment towards riskier assets.
The dollar has been hurt by a recent batch of disappointing US data, with many traders thinking that important numbers this week, such as ISM manufacturing and payroll data, could cement the view that the US recovery may remain slow for now.
The dollar was flat against the Swiss franc at 0.8507 francs , hovering near a record low of 0.8457 hit on Monday.
The New Zealand dollar jumped one percent to as high as $0.8264, a fresh post-float high. It rallied almost 2 percent at 67.30 yen , while the Australian dollar rose 0.7 percent to 87.09 yen.
The yen took an added hit after Moody's said it had placed its rating on Japan under review for possible downgrade, less than a week after rival rating firm Fitch cut its outlook on Japan's debt.
The dollar was up 0.8 percent to 81.57 yen while the euro jumped 1.7 percent to 117.63 yen, its highest since May 5.
Copyright Reuters, 2011