The single currency gave up its morning gains against the yen and dollar to stand at $1.2501 from $1.2502 late Monday in New York, while it was also at 99.32 yen from 99.58 yen. The unit is well down from levels around $1.2540 and 100.60 yen in Asia on Monday.
The dollar also dipped against the Japanese currency on Tuesday, fetching 79.45 yen from 79.64 yen in New York.
Euro-selling was stoked by a decision by ratings agency Moody's to downgrade 28 Spanish banks Monday, saying they faced rising losses from commercial real estate loans.
The cuts came on the same day that Madrid formally requested a rescue loan of up to 100 billion euros for the banking sector from its eurozone partners.
Dealers were already nervous ahead of a two-day summit at the end of the week that aims to address Europe's debt crisis, with most holding low expectations that anything concrete will emerge.
Also Monday Cyprus became the latest country to request aid from the eurozone's bailout fund, reflecting the bloc's worsening economy, said Credit Suisse analyst Hiromichi Shirakawa.
"We should pay attention to risks that a country in eastern or central Europe may fall into a crisis," he said in a note.
Currency traders were also eyeing Japan on Tuesday as lawmakers vote on controversial new legislation with Prime Minister Yoshihiko Noda facing a rebellion within his own party that threatens to bring down the government.
The bills, which would double Japan's consumption tax to 10.0 percent and revamp the social security system in a bid to shrink the nation's massive public debt, are expected to pass.
But more than 50 ruling-party members, led by one-time powerbroker Ichiro Ozawa, have spoken out against the rise with some threatening to create a breakaway party.