Initial euphoria over Spain's weekend deal quickly evaporated as investors feared the bailout-related payments could come ahead of regular government debt in the queue for repayment, adding to its high borrowing costs.
The lack of clarity about where the funds would come from also weighed on the single currency. Traders worried existing bondholders could incur losses in any debt restructuring if the euro zone's permanent bailout fund was used for the rescue.
These jitters saw the euro come off its Monday high at $1.2672 to last stand at $1.2484, still some distance away from the two-year low of $1.2288 hit earlier in the month.
"We know very little about the Spanish deal. The interest rate and the period of the loan is a big unknown, not to mention the source of the funds, so I'm not surprised the market doesn't quite know how to respond to it," said Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo.
"In the end, the euro failed to rebound after the deal, so I think there is almost no chance it would gain on short-covering ahead of the Greek poll," he said.
Parties that support and oppose Greece's international bailout and harsh austerity measures accompanying it, are neck-and-neck in opinion polls ahead of the election this weekend.
European officials discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.
The options market fully reflected the skittishness among traders with 1-week euro/dollar implied volatility spiking to a six-month high at 14.9 percent as quoted by ICAP, up from 10.8 percent last Friday.
BEYOND SPAIN
The situation in southern Europe has been aggravated by an outflow of money from the region.
Capital flight from Spanish banks hit a record for euro period, with a net outflow of 66 billion euros in March, the most recent month for which figures are available. That was before Spain's fumbled nationalisation of teetering lender Bankia.
Some market players, however, were already looking beyond the euro zone's fourth largest economy, and eyeing debt-ridden Italy as potentially next in line for a bailout which the euro zone could ill afford.
Economists at Citi said Italy faced rising debt for a prolonged period and "will most likely require some form of intervention from the ECB (which has already supported Italy twice), the EFSF/ESM (euro zone rescue funds) and the IMF at some point".
"If it came to saving Italy, than the whole euro project would be in grave danger and everyone would look to Berlin to save Italy," said Michiyoshi Kato, senior vice president of forex sales at Mizuho Corporate Bank in Tokyo.
Against the yen, the euro fell 0.1 percent to 99.05 yen , with traders citing selling by model funds and Tokyo players dumping long positions in the pair. Japanese exporters placed their offers around 100 yen, they added.
The dollar inched down against the safe-haven yen to 79.38 yen, coming off the previous day's high at 79.92 yen. The crucial support was seen at 77.65 yen hit on June 1.
Traders said any rise in the dollar may be curtailed by offers ahead of 80.00 yen. They added there are stop-loss orders above 80.00, and larger ones above 80.25 with the ascending 100-day moving average at 80.21 serving as a resistance.
The Australian dollar was last trading at $0.9895, from $0.9980 in late local trade on Monday. It rallied to $1.0010 early on Monday as short-covering kicked in after Spain's rescue.
It has a minor support around $0.9820, with resistance sitting around $1.0010.