By Chikako Mogi
TOKYO (Reuters) - Markets recovered some ground on Monday after heavy losses last week, but investors remained wary about the euro zone despite world leaders calling for Greece to stay in the monetary union and for Europe to balance austerity with growth.
G8 leaders meeting at the weekend vowed to take all necessary steps to combat financial turmoil and revitalize a global economy increasingly threatened by Europe's debt crisis, but they offered no specific prescription for debt-crippled Greece which holds fresh elections next month.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.5 percent, after sliding as much as 3 percent to its lowest level this year on Friday. It posted its worst weekly performance in nearly eight months with a weekly loss of around 6 percent.
World stocks also erased the year's gains on Friday as investors fled risky investments for safe-haven assets on concerns about the euro zone's deepening debt woes.
Japan's Nikkei stock average <.N225> gained 0.3 percent, after shedding 3 percent on Friday to log a seventh straight week of losses, its longest such losing streak since the third quarter of 2011. <.T>
Australian shares <.AXJO> rose 0.7 percent after slumping to a six-month low last week.
Concerns about contagion from Greek political turmoil have been magnified by deepening banking sector instability in Spain, and investors are expected to stay risk-averse at least until the June 17 Greek election makes clear whether the nation will stay or leave the euro, traders and analysts said.
"The fate of Greece won't become clear until the election, and markets will be swung around by comments from European leaders in the meantime, all of which makes it extremely difficult for investors to take any positions," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
"Today's move is merely a rebound from sharp losses on Friday and it doesn't have momentum to rise strongly. The G8 outcome lacked the punch to give much incentive for markets."
The euro inched up 0.1 percent to $1.2791, moving away from a four-month low of $1.2642 reached on Friday, which was not far from its trough of 2012.
But reflecting investor nerves, the yen, widely perceived as a safe haven, hovered near its three-month high against the dollar of 79.001 yen hit on Friday. The yen stood at 79.19 on Monday.
With a steadying euro, spot gold inched 0.3 percent higher to $1,596.59 an ounce, after rising more than 1 percent on Friday.
The G8 suggested mounting global support for highly indebted euro zone economies to be allowed to take less strict austerity measures and put more priority on stimulating growth. Reports also suggested Greece's anti-austerity forces could soften their stance to avoid a catastrophic outcome for the nation.
"The G8 making clear its push for growth and stressing that balance is necessary is positive for the markets and give some sense of relief after Friday's nervous session," said Yuji Saito, foreign exchange director at Credit Agricole Bank in Tokyo.
"But it does not offer a buying incentive for the euro, which had already seen short positions covered on Friday. Markets are shifting their focus to an upcoming European summit on May 23 and comments about the Greece election," he said.
The May 23 summit will focus attention on whether European leaders can strike a new balance between growth and the fiscal reforms deemed vital to fixing the euro zone's debt crisis and regaining market confidence in the single currency.
French President Francois Hollande said on Saturday he would make proposals for eurobonds at the May 23 informal meeting.
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Recent opinion polls show Greek voters are returning to the establishment parties that negotiated its bailout, offering potential salvation for European leaders.
Alexis Tsipras, the Greek leftist who polled strongly in the inconclusive May 6 election, says he wants talks to keep Greece in the euro. He is looking to forge ties with likeminded European figures such as Hollande.
G8 leaders also raised the pressure on Iran on Saturday, signaling their readiness to tap into emergency oil stockpiles quickly this summer if tougher new sanctions on Tehran threatened to strain supplies.
Oil prices recovered early on Monday, with U.S. crude up 0.1 percent at $91.57 a barrel, after falling more than 1 percent on Friday. Brent crude, which closed at its lowest in 2012 on Friday, also inched up 0.1 percent at $107.23 a barrel on Monday.
Credit Agricole's Saito said news that Germany's largest industrial union, IG Metall, had agreed to a 4.3 percent pay rise from employers could imply more difficulty for the European Central Bank to aggressively ease monetary policy if the euro zone's largest economy was solid enough to raise wages.
IG Metall's pay rise was the biggest rise in wages in two decades, which would boost consumption in Europe's biggest economy, analysts said on Sunday.
(Editing by Mark Bendeich)