Equities dropped overnight amid concern about the glacial pace of progress in resolving Europe's debt crisis as there's still no agreement on a Greek debt swap, and bond yields in Portugal soared.
A European Union summit of leaders, the first of 2012, offered little hope as Germany's Angela Merkel said they won't finalise Greece's second rescue package today because talks with private creditors over lowering the debt aren't completed.
And in Portugal, borrowing costs soared amid concern that the nation's bondholders will be forced to take a big haircut, too.
"Some type of private-sector involvement for Portugal is a likely event and that is probably one of the key risks," Jim Cielinski, head of fixed income at Threadneedle Asset Management in London, told Bloomberg. "Portugal has been trading off quite markedly."
Wall Street fell as did Europe's major indexes, and the euro. In early afternoon trading in New York, the Dow Jones Industrial Average dropped 0.68 per cent, the Standard & Poor's 500 Index fell 0.66 per cent and the Nasdaq Composite Index shed 0.34 per cent.
In Europe, the Stoxx 600 Index dropped 1.1 per cent. The FTSE 100, DAX and CAC 40 all ended lower. The euro sank for the first time in six days, falling 0.9 per cent to US$1.3099, according to Bloomberg News.
"After so many disappointments and debate on the Greek issue, the market is expecting very little to be agreed to in the short term," Michael Woolfolk, a senior currency strategist at BNY Mellon in New York, told Reuters.
Appetite for Italy's debt today was solid, as the nation sold 7.5 billion euros.
The Rome-based Treasury sold 2 billion euros of a benchmark 10-year bond at 6.08 per cent, down from 6.98 per cent at the last auction on December 29, according to Bloomberg. The Treasury also sold 3.57 billion euros of 5-year bonds at 5.39 per cent, down from 6.47 at the last auction of similar securities on December 14, and a total of 1.9 billion euros bonds due 2016 and 2021 bonds.
While confidence in the euro zone rose in January, sentiment among businesses and consumers in the 17 countries that share the currency fell short of expectations and varied among countries.
"We expect the recession in the euro zone will end in the spring," Christoph Weil, an economist at Commerzbank, told Reuters. "But we can also see that the divergence in the euro zone is increasing and that is of great concern."
Philips, Europe's largest consumer electronics, swung to a fourth-quarter net loss as government cuts ate into its healthcare equipment business and a slowdown in European construction activity and consumer spending hit its lighting operations. It said prospects for this year were no brighter.
Across the pond, US consumer spending was flat in December. That has led Morgan Stanley to cut its tracking estimate for spending this quarter to 1.4 per cent from 1.9 per cent.
"I do believe there is some underlying trend that gives us some reason to feel a little bit better about what lies ahead," Anthony Karydakis, chief economist at Commerzbank in New York, told Reuters.