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Portugal, Spain and Italy were expected to pay a high price to tap capital markets in what is seen as the year's first major test of whether the countries on the euro zone's periphery can fund their huge debt piles at sustainable cost.

"Clearly the sovereign debt issue is still there and the market is quite happy to just sell euros," a trader at a U.S. investment bank said.

The euro also slid to near 1.2450 Swiss francs and 107.00 yen. The single currency last stood at 1.2470 francs and 107.17 yen.

The dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, rose to a five-week high, recovering from a brief dip following weaker U.S. non-farm payrolls data on Friday.

The index last traded 81.01 after hitting a high of 81.2 earlier in the day.

Asian stocks were little changed on Friday with trading volumes light as Japanese markets remained closed for a public holiday. The MSCI Asia ex-Japan index .MIAPJ0000PUS was up 0.1 percent with energy stocks outperforming on oil's rebound.

Crude oil surged toward $90 a barrel, bouncing back from last week's 3.2 percent dip, after a leak shut an Alaskan pipeline that carries 12 percent of U.S. crude output.

The Trans Alaska Pipeline was shut down on Saturday with no indication of when it would reopen after a leak discovered at Prudhoe Bay, forcing oil companies to cut output to 5 percent of their daily average of 630,000 barrels.

Earnings season for major U.S. corporations kicks off later on Monday with major industrials, big oil, banks and chipmakers scheduled to report quarterly numbers.

Aluminum producer Alcoa (AA.N), scheduled to report later on Monday, was expected to post a strong fourth-quarter profit amid signs that a growing global economy is pushing up demand for aluminum and driving up the metal's price.

(Additional reporting by Ian Chua in Sydney; Editing by Alex Richardson)

A deal could be announced as early as Monday, the paper said.

Buying Danisco, which has a market valuation of about $4.4 billion, would accelerate Wilmington, Delaware-based DuPont's growth into the fast-growing food sector.

It would also enable Dupont to enter a niche in the chemical industry - food additives - long dominated by smaller rival International Flavors and Fragrances Inc (IFF.N).

DuPont and Danisco could not immediately be reached for comment.

Traditionally, DuPont has focused its product lines on chemicals and safety and protection equipment. The firm is most well known for its iconic Kevlar bulletproof vests and Tyvek homewrap, not biologically engineered corn or soybean.

But DuPont's last high-profile acquisition, its 1999 purchase of seed maker Pioneer for $7.7 billion, began a strategy shift toward a so-called "megatrend" of food and nutrition.

Many analysts at the time saw the price former CEO Charles Holliday paid as too much, though few dispute now that the Pioneer buyout helped save DuPont during the recession of 2008. Holliday is no longer with the company, and now serves as chairman of Bank of America (BAC.N).

The Danisco acquisition, if it happens, would be the first major deal for Chief Executive Ellen Kullman since she took control of DuPont about two years ago.

It would also offer her a chance to leave a lasting legacy on the company, the way Holliday's buyout of Pioneer continues to define his tenure.

Danisco in December posted a bigger rise than expected in second-quarter profits, driven by efficiency measures and sales growth, and nudged up full-year guidance.

(Reporting by Ernest Scheyder and Megan Davies)

Both the U.S. unemployment rate and the amount of idle factory space are abnormally high, stark evidence that the economy is still well below its full potential.

But price pressures are building in commodities despite the ample U.S. economic slack, thanks in large part to demand from emerging markets. The Reuters Jefferies CRB index .CRB of commodities is up 28 percent since July.

The pressures are concentrated in food and energy, the two categories the Federal Reserve prefers to ignore when it examines current data to get a sense of future U.S. inflation trends. The central bank's reasoning is that those items are too volatile to provide a reliable guide.

That doesn't help businesses faced with the margin-bruising prospect of paying more for raw materials while customers expect discounts in a still-weak economy.

Figures this week are expected to show U.S. businesses absorbing the higher costs. Economists polled by Reuters think Thursday's producer price index will show a 0.8 percent gain, but consumer prices, due a day later, probably rose just 0.4 percent.

The gap looks even wider on a year-over-year basis, with PPI expected to show an increase of 3.8 percent while CPI is up just 1.3 percent.

Companies may not be willing to eat the higher costs forever, particularly with the economy showing some signs of picking up speed and consumer spending strengthening.

"My sense is manufacturers (will) try to be aggressive on pricing in the first half of the year," said Norbert Ore, chairman of the ISM manufacturing business survey committee, which produces a monthly poll on factory activity.

The latest ISM installment, released earlier in January, showed a big spike in prices paid for materials.

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This is not the front edge of a U.S. inflationary storm. That would require a much stronger labor market capable of generating intense wage pressures.

But it does have Fed Chairman Ben Bernanke's attention. He told lawmakers on Friday that the central bank was watching fuel prices in particular to ensure they don't put a strain on consumers' spending power.

"I think the main reason oil prices are up is the strength of emerging markets, the demand for energy from China and other fast-growing emerging market economies," Bernanke said.

Many of those emerging markets are having a very difficult time containing inflation -- and unlike the Fed they cannot overlook food and energy costs when setting policy.

The stock-based deal would come at a low premium to Progress' $13.1 billion market value, one source said.

The Financial Times reported on Saturday that the companies hope to announce the deal on Monday morning, but cautioned that some details still need to be worked out so the talks could be delayed or even derailed.

Both electricity generating companies are based in North Carolina and serve clients in North and South Carolina. Duke serves some markets in the Midwestern United States and Progress also supplies customers in Florida.

Duke last year lost out on a bid for the U.S. assets of German utility E.ON (EONGn.DE) but its chief executive, Jim Rogers, an industry veteran who has led various utilities in the past 21 years, has widely been seen as hungry to make acquisitions. Duke bought rival Cinergy for $9 billion in 2006, bringing Rogers onboard, who was then serving as CEO of the smaller company.

The U.S. power industry has seen a resurgence of deal activity in the past year, including FirstEnergy's (FE.N) $4.7 billion deal for Allegheny Energy (AYE.N), E.ON's $6.7 billion sale of its U.S. unit to PPL Corp (PPL.N) and Carl Icahn's recent bid to buy power producer Dynegy. (DYN.N)

But tough requirements from U.S. state regulators, who often oppose large mergers on fears that prices could rise and services could decline, could stymie consolidation in the utility sector. State regulators have sought drastic concessions in the past in the form of rate reductions from companies planning to merge.

In a previous wave of consolidation that took place during the middle of the last decade, planned mergers of FPL Group FPL.N and Constellation Energy Group (CEG.N), as well as Exelon (EXC.N) and Public Service Enterprise Group (PEG.N) fell apart after regulatory problems arose.

Duke and Progress were not immediately available for a comment.

(Reporting by Michael Erman, editing by Maureen Bavdek)

Some preliminary discussions on the possibility of Portugal asking for help if its financing costs on markets become too high have taken place since July, the source said.

No formal talks on aid have started yet, a number of euro zone sources said, but the pressure was rising in the Eurogroup, which brings together euro zone finance ministers.

"France and Germany have indicated in the context of the Eurogroup that Portugal should apply for help sooner rather than later," the senior source said, adding that Finland and the Netherlands had expressed similar views.

Earlier on Sunday a Portuguese government spokesman denied a German magazine report that Lisbon was under pressure from Berlin and Paris to seek a bailout from the European Union and International Monetary Fund.

Many policymakers hope EU/IMF financing for Portugal would ring fence the euro zone debt crisis, in which Greece and Ireland have already taken bailouts.

Help for Lisbon would aim to protect Spain which might be next in line, but whose financing needs would stretch current euro zone aid capabilities to the limit.

"The real battle will be the battle of Spain -- but there I think we have much higher chances of success," the source said.

Asked to estimate the possible size of a program Portugal could need, the source said:

"More than 50 billion euros and less than 100 billion euros, say between 60 and 80 billion, but this is off the cuff, because we don't know the needs of the Portuguese banking sector."

Portugal is viewed by many economists as the peripheral euro zone country that is most likely to follow Ireland and Greece as it grapples to cut its debts and borrowing costs.

"Portugal has not requested it -- you cannot force somebody to want something," a second senior euro zone source said. "Strictly arithmetically speaking, it would not be necessary, but given the hysterics of some market participants it may become useful."

Pressure on Lisbon to ask for aid has grown since yields on Portuguese paper rose last week to levels that many see as unsustainable, the first source said.

There had already been pressure on Lisbon to ask for financial help before an EU leaders' summit in mid-December, but to no effect, the first source said, because Portuguese Prime Minister Jose Socrates opposes such a move.

"There are still memories in Portugal of the IMF program of the seventies, and the loss of sovereignty that it entails," the source said.