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New York - Stocks and the euro fell on Wednesday and safe-haven government bonds rose as divisions between euro zone officials over a new aid plan for debt-heavy Greece curbed demand for growth-driven investments.
In the United States, weaker-than-expected manufacturing and housing data renewed worries over slowing growth, while figures that signaled the biggest rise in core consumer prices in nearly three years caused some to reconsider how long inflation pressure will remain tame in the absence of policy tightening from the Federal Reserve.
"A resolution has to be met at some point in time," said John McCarthy, director of currency trading at ING Capital Markets in New York. "Greece can't continue along its current path, we all know that. The question is, 'What is the resolution?'"
Anxiety over the Greek debt crisis and disappointing US data put downward pressure on global equity markets.
Bank shares led the sell-off after Moody's Investors Service said it may put the credit ratings of French banks BNP Paribas, Credit Agricole and Societe Generale on review for a possible downgrade, citing the French banks' holdings of Greek public and private debt.
The MSCI world stock index was down 1 percent after posting its biggest single-day percentage rise in two weeks on Tuesday due to less-grim Chinese and US economic data.
On Wall Street, stocks gave back Tuesday's gains, which had temporarily slowed a six-week sell-off.
The Dow Jones industrial average was down 128.44 points, or 1.06%, at 11 947.67. The Standard & Poor's 500 Index was down 15.46 points, or 1.20%, at 1 272.41. The Nasdaq Composite Index was down 29.11 points, or 1.09%, at 2 649.61.
Top European shares fell 1%, while Tokyo's Nikkei ended 0.3% lower following Tuesday's rally in New York.
Stocks vulnerable
As more evidence of an economic slowdown is likely to emerge, some analysts predict a further decline in stocks.
"Even if it's in a soft patch, the slope of the US recovery will still be disappointing and it will be an uneven performance," said Clark Yingst, chief market analyst at Joseph Gunnar in New York.
The expiration of the Federal Reserve's $600bn bond program, known as QE2, at month-end and disappointing quarterly company results could put additional selling pressure on stocks in the near term, Yingst said.
He forecasts the S&P 500 could fall 11% to 20% from its peak in early May.
Meanwhile, striking Greeks raged against a new wave of austerity after euro zone finance ministers failed to agree how to make private creditors contribute to a second bailout for their indebted country. This shifted the onus onto the leaders of Germany and France to forge a deal later this week.
The turmoil in Greece, which is seeking €120bn in fresh aid, intensified on Wednesday. The leader of Greece's conservative opposition has asked Prime Minister George Papandreou to stand down and agree to a commonly accepted new head of government, a source from the New Democracy party told Reuters.
The latest twists in Greece's predicament, combined with Moody's warning on French banks, knocked the euro lower.
The currency slid 1% against the dollar, sending it close to a recent low of $1.4285 hit on trading platform EBS. It was last down 0.9% at $1.42876, breaking below its 21-day moving average, with traders citing selling from leveraged and real money accounts.
Investor jitters rekindled a flight into low-risk U.S. and German government bonds.
Improved demand for bonds lowered benchmark 10-year Treasury yields to 3.05%, down 5 basis points on the day. German Bund futures were up 0.4% at 125.91.
US oil prices turned higher on government data showing an unexpectedly large 3.41-million-barrel drop in crude inventory. This suggests oil demand by the world's biggest energy consumer has held up despite signs of slowing economic activity.
A stronger dollar had earlier fueled selling in oil.
The spot NYMEX oil contract in New York last traded up 21 cents at $99.58 a barrel. In London, July Brent crude futures were down $1.52 at $118.64 a barrel.
Spot gold prices were at $1,530.94 an ounce, up from $1,523.25 on Tuesday, as buying on euro zone sovereign debt concern overcame earlier selling from a stronger dollar.
