Worries that the failure to resolve Greece's debt crisis will hamper Europe's economic growth weighed on stocks on both sides of the Atlantic.
Also curbing appetite for equities was a Bloomberg News report that international financial supervisors were considering capital surcharges of as much as 3.5 percentage points on the largest banks if they grew bigger. Financial shares including JPMorgan Chase & Co and Citigroup Inc declined.
In late afternoon trading, the Standard & Poor's 500 Index fell 0.16 per cent and the Nasdaq Composite Index dropped 0.55 per cent. The Dow Jones Industrial Average rose 0.21 per cent.
"The speculation on Basel is a mild disappointment," Mark Bronzo, who helps manage US$26 billion at Security Global Investors in Irvington, New York, told Bloomberg. "We need the banks for the economy to recover. If the capital requirements are too restrictive, some banks may have to come back to the market to raise more capital.
If restrictions are more severe than expected, it may also prevent banks from lending as much as people want them to do."
In Europe, the benchmark Stoxx 600 Index fell 0.5 per cent to 266.73, its lowest level since March.
Investors are increasingly concerned about the Greek fiscal crisis. As riots in Athens over austerity measures continued, Greek Prime Minister George Papandreou said he would reshuffle his cabinet and seek a vote of confidence.
"The situation is very terrible at the moment because there are so many stories about the debt crisis out there and nobody knows what the solution is," Markus Wallner, a senior equity strategist at Commerzbank AG in Frankfurt, told Bloomberg News. "The equity market will only turn around when we finally agree on a solution. Economic data showing no sign that the US is in recovery mode are not helping either."
The euro fell to a record 1.1946 Swiss francs on electronic trading platform EBS, before recovering to 1.20363, 0.5 per cent weaker on the day.
Against the greenback, the euro last traded 0.2 per cent lower at US$1.41539.
Investors doubt an agreement on a Greek bailout plan will be reached in the near term.
European Union and banking sources told Reuters that Germany wanted the deadline for a second rescue deal to be pushed back to September.
Some are more concerned about the European economy than that of the US, even as the latest data paint a mixed picture of the world's largest economy at best.
"It is certainly feeling like a durable downturn in the US, but the reality is the US economy is in a more stable position than its rivals," Karl Schamotta, senior market strategist at Western Union Business Solutions, Victoria, British Columbia, told Reuters.
"The situation in Europe is under-appreciated, and the US is set to outperform regardless of how negative things get," he said.
Concern about global demand sent metals including copper lower
On the London Metal Exchange, copper for delivery in three months declined 1 per cent to US$9,065 a metric ton. Copper futures for September delivery shed 0.1 per cent to US$4.136 a pound on the Comex in New York.
Lead, aluminium, zinc, nickel and tin also fell in London.
"It is clear that the trend is downward for the economies and for the base metals as a result," Dennis Gartman, an economist, said in his Gartman Letter, according to Bloomberg. "We need to sell base metals."
Oil rebounded from yesterday's drop after the International Energy Agency said global refinery crude demand would increase sharply in the third quarter as refiners exited turnarounds and replenished depleted oil product stocks for peak summer demand.
Higher demand and reduced spare Opec capacity would leave oil markets under greater strain between now and 2012 than previously thought, IEA said.
Brent crude for August delivery was up US$1.16 at US$114.17 a barrel, while US July crude was 4 cents stronger at US$94.85 a barrel.