The Swiss franc surged to new all-time highs against the euro and the dollar in volatile trade on Tuesday, while the Japanese yen held firm

Investors unwound leveraged trades funded in the dollar and the yen as global stocks, as measured by the MSCI's all-country world index fell 1 percent. It has now shed 20 percent since peaking in May, suggesting it is in a bear market and boding ill for growth-linked currencies like the Australian, New Zealand and Canadian dollars.

Markets have become deeply risk-averse in recent days after Friday's downgrade of US sovereign debt by Standard and Poor's and persistent worries over the euro zone spooked investors and fuelled concerns about a global slowdown like the one witnessed after the collapse of Lehman Brothers in 2008.     

The euro tumbled through a low of 1.0605 francs  hit in Asian trade, dropping to its lowest on record at 1.0475 francs, according to EBS data. It was last at 1.0564 in volatile trade, down 1.3 percent for the day.

Commodity currencies stayed under pressure following heavy losses in the Asian session. At one point the Australian dollar fell below parity against the US dollar, sliding to $0.9927, its lowest in about five months, but later recovered to $1.0157.       

The Aussie posted its biggest one day percentage fall since mid-May 2010 on Friday and has lost about 10 cents from a 29-year peak of $1.1081 set just two weeks ago. 

The dollar drifted to 76.991, below levels where Japanese authorities intervened heavily on Aug. 4. and not far off the record low of 76.25 yen reached in mid-March. It was last down 0.9 percent at 77.05 yen.   

The dollar briefly spiked against the yen in Asia, fuelling speculation that Tokyo authorities had stepped into the market to follow up on last week's massive yen selling intervention, but there were no sightings of official action on Tuesday.

Japanese Finance Minister Yoshihiko Noda said on Tuesday he was watching markets with a sense of urgency after share prices tumbled. 

The euro gained some support after European Central Bank President Jean-Claude Trichet said on Tuesday the ECB was actively buying government bonds. Traders said the ECB was buying Spanish and Italian bonds for the second day running. It was last up around 0.7 percent for the day at $1.4270 with Asian central banks cited as buyers at lower levels. - Reuters