The price France has to pay to sell 7 to 8 billion euros of longer-term bonds will measure how much relief markets have taken from the EU leaders' December plan for resolving the crisis, and the near half-trillion euros subsequently pumped into the region's banks by the European Central Bank.
Markets have been bracing for France to lose its current AAA rating after ratings agency Standard & Poor's warned in early December of a mass downgrade due to concerns about the bloc's two-year old debt crisis.
"Even France and Germany have come into focus in terms of how their auctions fare, but I don't think today's auction will have a dramatic effect (on the euro) unless the sale is disastrous," said Johan Javeus, chief strategist at SEB in Stockholm.
"I don't think that a fairly successful auction will be enough to trigger a round of risk appetite," he said.
France is seen at a greater risk of contagion from the euro zone debt crisis than Germany, but the real test comes next week with Spain and Italy, the two big economies seen as most at risk from the crisis that has already dragged down Greece, Ireland and Portugal, due to issue bonds.
"Whilst France currently clings to its AAA credit rating at the moment, the chorus of warnings from credit agencies about imminent downgrades could deter investors," Capital Spreads trader Jonathan Sudaria said.
Germany saw subdued demand at its first auction of the year on Wednesday.
The euro eased 0.6 percent to around $1.2870 on Thursday, after touching the September 2010's low of $1.2847 passing 2011's lowest level of $1.2856 hit on December 29.
The FTSEurofirst 300 .FTEU3 index of top European shares was also sliding ahead of the French bond auction and was down 0.4 percent at 1017.28 points after hitting a five-month high on Tuesday.
The MSCI world equity index .MIWD00000PUS edged down 0.4 percent after weakness in Asian stock markets earlier.
The difference between Spanish and Italian government bond yields and safe-haven German Bunds also widened on Thursday.
France was expected to draw solid demand at the auction of 10- to 30-year government bonds, known as OATs, despite the lingering threat of a downgrade as the yields are higher than equivalent German debt.
"We would like a low yield and reasonable coverage in the French bond auction and if the market does not get that it will probably get spooked," Andrea Williams, who manages $2.1 billion in assets for Royal London Asset Management, said.
In the secondary market, 10-year French government bonds yielded 3.33 percent, up 2.4 basis points on the day.
HUNGARIAN PROBLEMS LOOM
Elsewhere in European Union attention is focusing more on the selloff in Hungarian financial markets, which is forcing investors to weigh the possibility of a default in the European Union state and the risk of contagion to other regional economies.
Hungary needs to find around $16.5 billion this year to repay debt owed to bondholders and the International Monetary Fund, but is effectively cut off from global capital markets as growing mistrust in its policies pushes up borrowing costs.
In commodity markets Brent crude moved over $114 barrel on Thursday on fears of supply disruption after the United States and European Union stepped up pressure on Iran agreeing in principle to ban oil imports from the No. 2 OPEC producer.
Brent crude was up about 0.4 percent $114.16, after advancing nearly 6 percent in the past two sessions to close at the highest since November 11 on Wednesday.