Equities in the US fell, led by financial shares on concern about widening probes of mortgage-bond deals by the major American banks and whether ratings agencies were duped.

New York Attorney General Andrew Cuomo was investigating eight banks over whether they misled the agencies that rated mortgage securities, reports said.

Bank losses stemming from the collapse of the US subprime mortgage market beginning in 2007 totalled about US$1.78 billion globally, according to Bloomberg data. Goldman Sachs is already being investigated for its role in the sale of some mortgage securities.

In late trading, the Dow Jones Industrial Average fell 0.87 per cent, the Standard & Poor's 500 Index declined 0.98 per cent and the Nasdaq Composite dropped 1.19 per cent.

Among the most active were Citigroup, Deutsche Bank and Cisco Systems.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', rose 3.02 per cent to 26.29.

The Stoxx Europe 600 Index rose 0.3 per cent to 257.24, the highest close since May 3.

The U.K.'s FTSE 100 rose 0.93 per cent, and Germany's DAX gained 1.11 per cent. In France, the CAC 40 slipped 0.06 per cent

Among the most actives were J Sainsbury, BT Group, Vallourec and EFG Eurobank Ergasias.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.52 per cent to 85.28.

The euro slid against the US dollar on Thursday amid concern plans to stem Europe's debt crisis would hamper economic growth.

Portuguese leaders agreed to tough new austerity measures overnight, including higher taxes and wage cuts for civil servants. In Spain, unions threatened a general strike to protest austerity measures there.

"Europe basically looks like a zombie economy and on top of it, you're seeing a massive retrenchment in government spending," Jessica Hoversen, fixed income and currency analyst at MF Global in Chicago, told Reuters.

In midday New York trading, the euro fell 0.41 per cent to US$1.2569, after earlier falling to a low of US$1.2540.

Against the yen, the US dollar was down 0.55 per cent at 92.66.

In a speech in London, former US Federal Reserve chairman Paul Volcker said he's concerned that the euro area might break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region's members.

US Treasury 30-year bonds declined after a US$16 billion sale of the long bonds attracted lower demand than forecast.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, slipped 0.39 per cent to 265.78.

Gold remained near record highs as doubts about whether the US$1 trillion European rescue plan would solve the crisis supported prices for the safe-haven commodity.

Silver and platinum group metals were also unchanged as volatile currency and equity markets showed signs of stabilising.

Gold's rally in dollar terms now stands at 7 per cent from a week ago.

Worries about the European rescue plan sent gold priced in euros and sterling to record highs.

Gold was at US$1,236.55 an ounce at midday, from US$1,236.35 an ounce late in New York yesterday.

Spot silver was unchanged at US$19.48 an ounce. Platinum dipped to $1,724.50 from $1,736.50. Palladium rose $540.50 from $540.

US crude futures dropped on high inventory levels, especially at the Nymex delivery point in Cushing, Oklahoma, which were at a record.

The US Energy Information Administration's weekly oil inventory report on Wednesday showed total crude stocks rose more than expected.

On the New York Mercantile Exchange at 10.25am EDT US crude for delivery in June fell US$1.58, or 2.09 per cent, to US$74.07 a barrel.

Brent crude for delivery in June fell 64 cents, or 0.79 per cent, to
US$80.56 a barrel. The Brent June contract expires on Friday.