Government bonds sold off again on Tuesday, driving down stocks and helping push the euro sharply higher against the dollar.

Ten-year U.S. Treasury yields US10YT=RR, the benchmark for global borrowing costs, hit their highest since early December, while German 10-year yields DE10YT=TWEB added 12 basis points to 0.71 percent.

Volatility in the bond markets weighed on stocks, adding to existing investor anxiety over the perilous state of Greece's finances. Shares in Europe and Asia fell and Wall Street was expected to follow in their wake, index futures showed ESc1.

"It's a matter of concern for the market. When any particular asset class goes through periods of extreme volatility in a short space of time, people feel the pressure to take their risk exposure lower," Ian Richards, global head of equities strategy at Exane BNP Paribas, said.

Less than a month ago German 10-year yields hit a record low of 0.05 percent, driven down by a 1 trillion euro European Central Bank bond-purchase scheme intended to kick-start inflation.

Traders, who struggle to fully explain the recent yield surge, blame it on a rise in inflation expectations, higher oil prices, and restricted liquidity, caused by ECB purchases, as investors sought to exit a crowded trade.

"It's clear that the market hasn't stabilized. Before the sell-off started the common perception was one of low volatility. Now investors are more cautious, asking for a premium for the volatility we've seen recently," said Jan von Gerich, chief fixed income analyst at Nordea.

Higher German yields lifted the euro EUR= 1 percent to $1.1265, having fallen close to Monday's low of $1.1131 in Asian trade. It was also up 0.9 percent at 135.02 yen EURJPY=.

The dollar index .DXY, which measures the U.S. currency against a basket of major peers, fell 0.7 percent. The yen was 0.2 percent higher at 119.88 per dollar.

U.S. 10-year yields, which have been driven higher in recent weeks by German Bunds, last stood at 2.34 percent, up 7 basis points on the day, their highest since late November.

Elevated U.S. yields mean higher corporate borrowing costs, which could hit shares across the world.

The pan-European FTSEurofirst 300 index .FTEU3 fell 1.8 percent.

GREECE

Investors have also been concerned that debt-burdened Greece could run out of cash. Euro zone finance ministers, who met on Monday, acknowledged progress in talks between Greece and its creditors but said more work was needed to close a cash-for-reforms deal. Athens stocks .ATG lost 0.5 percent.

Worries that higher yields could drive the dollar higher weighed on Japanese stocks. Tokyo's Nikkei .N225 ended flat.

MSCI's main gauge of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent. Chinese shares, however, maintaining momentum after the central bank's weekend cut in interest rates. The CSI300 index .CSI300 rose 1.2 percent.

Oil prices, up more than 50 percent from their January lows, rose further as dollar weakness trumped concerns about oversupply. Brent crude LCOc1 was up $1.40 cents at $66.32 a barrel.

Gold XAU= rose 1 percent to at $1,196.60 an ounce.