World stocks fell for a fifth day and Brent oil prices dropped 2% o n T hursday on concerns about the health of Spain's banks and the prospect of Greece leaving the euro zone.
Adding to pressure on Wall Street stocks was a US government report showing manufacturing in the mid-Atlantic states unexpectedly contracted in May.
The data helped lift safe-haven US Treasuries prices and pushed the 10-year note yield to its lowest in more than seven months, while the yen climbed against the euro and dollar.
Worries about Spanish banks resurfaced after a media report said customers of Bankia had withdrawn more than 1 billion euros from their accounts in the past week. The Spanish government said there had been no such exit of deposits.
The developments in Spain followed reports that customers of Greek banks were moving funds on the belief the country would exit the euro, adding to broader anxiety about the region's debt crisis.
After the US market close, Moody's Investors Service cut the long-term and deposit ratings of 16 Spanish banks, including Banco Santander.
"The whole equities market is being driven by a macro trade based upon contagion fear in Europe, and really the problem is undercapitalized banks there," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.
Global shares, as measured by MSCI's world equity index, dropped 1% and posted in a fifth day of losses, along with US stocks.
On Wall Street, the Dow Jones industrial average <.DJI> ended down 156.06 points, or 1.24%, at 12,442.49. The Standard & Poor's 500 Index was down 19.94 points, or 1.51%, at 1,304.86. The Nasdaq Composite Index was down 60.35 points, or 2.10%, at 2,813.69.
US data also showed new claims for US jobless benefits last week held at levels suggesting sluggish growth in hiring.
Caterpillar Inc dropped 4.5% to $87.77 and was the biggest drag on the Dow after the heavy equipment company's dealers reported slowing sales for April.
After the US close, Facebook Inc priced its initial public offering at $38 per share, valuing the world's largest social network at more than $100 billion.
European shares also dropped. The pan-European FTSE 300 index ended down 1.2%, a fourth straight day of declines.
In the oil market, concerns about Greece and the wider euro zone drove down Brent futures, wiping out 2012 gains. Brent July crude fell $2.26, or 2.06%, to settle at $107.49 a barrel, the lowest settlement since December 30.
"The oil market, like other risky assets, is within the grips of uncertainty surrounding the euro zone," said Harry Tchilinguirian, BNP Paribas head of commodities strategy.
US June crude fell 25 cents, or 0.27%, to settle at $92.56 a barrel, the lowest settlement since November 2
Investors followed the heated political debate in Athens, where opponents of harsh austerity measures to obtain an international bailout are expected to win new elections in June.
In the foreign exchange market, the euro dropped to 100.54 yen, the lowest since February 7. It was last at 100.94, down more than 1.0%. The dollar also fell sharply against the yen, sliding to 79.12 yen, its weakest level since February 17.
The euro had also fallen to a four-month low versus the dollar but recovered by early afternoon to trade slightly higher on the day.
Treasury prices climbed. Yields on the benchmark 10-year Treasury note fell to their lowest levels in more than seven months and were within striking distance of 1.67%, the lowest yield in at least 60 years.
"Treasuries continue to be the haven of choice for a spooked market," said Gennadiy Goldberg, fixed-income strategist at 4Cast Ltd in New York.
Gold prices also rose, with spot gold registering its largest one-day gain since late January.
Spot gold bounced more than 2.6% to an intraday high of $1,579.70 and was last up 2.36% at $1,575.5 per ounce.
That is up almost $50 since gold plunged to around $1,527 on Wednesday, its lowest level since December.
© Thomson Reuters
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