Commodity currencies, such as the Australian dollar, bore the brunt of the market's fears, though they recouped some of their heavy losses, while the euro escaped with only modest losses as bears stayed cautious given the already huge bets made against the currency. Still the greenback is seen supported as many European banks scramble to secure dollar cash as the dollar money market seizes up with investors fearing a fall in euro zone government bond prices could pummel European banks. "There is no fundamental change in the markets' risk averse mood. There's been no clear progress in the euro zone," said Koji Fukaya, chief FX strategist at Credit Suisse. "Given the funding shortage in the dollar, the dollar is unlikely to fall much at least until the end of the year." The dollar index held steady in Asia, standing at 78.33, near a six-week high of 78.516 hit overnight, as European and US stocks skidded and funds fled to Treasuries. It was last at 78.352. The dollar hardly budged after ratings firm Fitch repeated that a failure by a US congressional committee to reach agreement on the country's deficit would likely result in a negative rating action -- most likely a revision of the rating outlook to Negative, rather than a downgrade. "If there was a downgrade of the US credit rating, the dollar would be sold off. But that seems unlikely in the very near future," said Mitsuru Saito, chief economist at Tokai Tokyo Securities. EYE OF THE STORM In the eye of the storm, the euro held up remarkably well at $1.3501, above a six-week low of $1.3421 hit last week, helped by speculation of more short-covering in the currency. Data from a US watchdog showed on Friday that speculators held large net euro short positions, of 76,147 contracts. "Looking at Chicago futures positions, some people might think that there will be more short-covering," a trader at a Japanese bank said. Talk of ongoing repatriation of foreign assets by European players has helped put a floor under the single currency and discouraged short-sellers. Some traders speculated that the euro's resilience has mainly been driven by European corporates repatriating profits they earned in fast-growing emerging economies ahead of the end of year, rather than banks which probably need more dollars than euro. Still, the common currency could come under renewed pressure soon unless policymakers come up with drastic measures to stop investors dumping euro zone government bonds. "Some market players, including myself, are hoping that policymakers break new ground on the joint bond idea this week. If there is no progress on that front, the euro could slip back," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ. The European Commission has set out in a paper to be published on Wednesday how closer monitoring of countries' budgets could in the long-run make it possible to issue jointly underwritten euro zone debt. The dollar got a small lift against the Japanese yen after some traders took comments from Japanese Finance Minister Jun Azumi as hinting at more intervention, although he in fact merely stated that huge buying of foreign bonds by the Bank of Japan -- an idea floated by some economists -- would not be in line with government thinking. The dollar briefly rose to as high as 77.35 yen but quickly ceded gains to stay around 77.09 yen. The pair stood at important resistance from their 90-day moving average, at 77.09 yen on Tuesday, which has capped the dollar since April, barring a short period after Japan's intervention in August and October. The Aussie pared some of its heavy losses incurred on Monday to stand at $0.9872, up 0.3 percent on the day but still below a support-turned-resistance level of around $0.9910, the 61.8 percent retracement of the October rally. The next downside target is seen at $0.9710, the 76.4 percent retracement level. News that a congressional effort to rein in ballooning US debt has ended in failure and Moody's warning about growing risks for France's triple-A rating led already skittish investors to dump growth-linked assets. Moody's, however, said the US failure to come up with a deficit-cutting plan will not by itself lead to a ratings downgrade.