The spotlight will be on France's debt auctions in the holiday-shortened first week of January.

Thursday's auctions, along with a German sale Wednesday, will be the year's first test of borrowing conditions, as a potential euro-zone recession threatens to further roil debt markets. Italy, Spain and other "peripheral" euro-zone members have found it increasingly difficult and expensive to lure new buyers for their debt as the region's sovereign-debt crisis has dragged on.

If the auctions result in higher-than-expected yields or less debt sold than expected, it will indicate investors are wary of buying debt even from core European countries.

On Thursday, France will auction EUR7 billion to EUR8 billion of long-term debt, maturing in 2021, 2023, 2035 and 2041. The French Treasury Agency also will sell a total of EUR7.6 billion to EUR8.9 billon of Treasury bills at its weekly auction Tuesday.

Meantime, on Wednesday, Germany will auction EUR5 billion of its 2% January 2022 bund. Germany drew very disappointing bids at its latest auction Nov. 23, further escalating the European debt crisis.

"It'll be interesting to see where those auctions get done because it'll show how much demand is there," said Adrian Miller, senior vice president for global markets strategy at Miller Tabak Roberts Securities LLC in New York.

Euro-zone governments will try to sell around EUR800 billion of government bonds in 2012, a figure just marginally off from bond supply in 2011. The funding costs of noncore countries, primarily of Italy, remain at elevated levels, questioning long-term funding sustainability.

Rome paid a sharply lower yield of 5.62% for borrowings due in 2014. But the yield investors demanded for 10-year bonds on Friday was 6.98%--barely down from the euro-era highs of recent months and nearly touching the 7% threshold that economists consider financially unsustainable. The yield on France's 10-year bonds stood at 3.14% on Friday.

"Euro-zone government bond supply will remain one of the hot topics of the European Union debt crisis in 2012, especially in the first months of the year," said BNP Paribas SA strategists in a note.

Decreasing demand for peripheral bonds has caused funding difficulties for their issuers, the BNP Paribas strategists said, adding that the first quarter of 2012 is going to be much heavier than the fourth quarter of 2011 in terms of euro-zone government bond supply.

Another factor influencing the cost of selling debt is the impending result of Standard & Poor's Ratings Services review of euro-zone countries and possible downgrades. The downgrades could come as early as the first week of January and would push up borrowing costs for countries that receive lower ratings.

"The key next week will be the auction results in the euro-zone countries, any other developments in the area and jobs data in the U.S.," said Marc McCormick, a currency strategist at Brown Brothers Harriman in New York.

U.S. employment data on Friday could provide clues to improvements in the world's largest economy.

Still, "the focus will be on Europe," said Fabian Eliasson, head of currency sales at Mizuho Corporate Bank in New York. "We've been chugging along and with Monday being a holiday, it may be slow next week but we'll see activity pick up by Thursday."