World shares slumped and the euro hit a two-week low on Wednesday as growing opposition in Europe to measures aimed at resolving the euro zone's debt crisis unnerved investors already skittish about the weak outlook for global growth.
Investors focused on Spain, where the main share index lost 3.9 percent and yields on 10-year bonds hit 6 percent on worries about Madrid's commitment to reform after violent protests and talk of secession by the wealthy Catalonia region.
A general strike in Greece and signs of discord among top euro zone officials over new policies to tackle the crisis added to concerns, taking the gloss off recent moves by the European Central Bank to calm markets by buying bonds.
International lenders are at loggerheads over how to solve the crisis in Greece, threatening more trouble for the euro zone as the International Monetary Fund demands European governments write off some of the Greek debt they hold.
The euro fell to $1.2836, a two-week low, and traded at $1.2864, down almost 0.3 percent on the day.
Crude oil prices fell more than 1 percent before paring some losses, and U.S. stocks followed European shares lower, though not as sharply. Stocks in the euro zone suffered their worst session in two months.
More From This Section
Both U.S. and German government debt rallied in safe-haven buying.
"Things are bumpy again in Europe. You are seeing more tension there," driving the bond rally, said Eric Green, global head of rates and FX research and strategy with TD Securities in New York.
Yields on Spain's 10-year bond topped 6 percent for the first time in a week, while U.S. government debt prices rose for an eighth straight session. Reluctance by Spain to ask for aid could prolong the euro zone debt crisis.
The benchmark 10-year U.S. Treasury note was up 16/32 in price to yield 1.6164 percent.
"As if insulted by all the attention that Spanish protesters were getting, Greek citizens held a protest of their own," said Neal Gilbert, market strategist at GFT in Grand Rapids, Michigan. "All of this uncertainty is causing investors to head for the exits and scramble for some safe-haven assets, propping up the U.S. dollar."
Traders and investors active in the market realize that despite reduced risks, the ECB's bond-buying program does not resolve all the problems in the euro zone, analysts said.
A fresh batch of weak data and gloomy corporate reports from across the globe weighed on sectors most sensitive to the economic cycle, like autos and basic resources.
The Euro STOXX 50 index of euro zone blue chips closed down 2.7 percent at 2,498.52, marking the biggest one-day drop since early August.
MSCI's all-country world equity index was down 1.3 percent at 330.60.
The FTSEurofirst 300 of top regional shares fell 1.86 percent to 1099.01.
In the United States, the view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, according to a survey of chief executives released by the Business Roundtable.
Slowing global growth is likely to crimp company profits. Caterpillar Inc cut its earnings outlook for 2015 on Monday, as have FedEx Corp and Norfolk Southern , both of which are economic bellwethers because of their shipping roles.
"Buyers have reached a point of exhaustion after FedEx and Caterpillar and the like, all of whom pointed to economic weakness," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
"People had been buying on the idea that the Fed would prop everything up, but if they can't, there's real potential for panic selling," Dailey said.
The Dow Jones industrial average closed down 44.04 points, or 0.33 percent, at 13,413.51. The Standard & Poor's 500 Index fell 8.27 points, or 0.57 percent, at 1,433.32. The Nasdaq Composite Index slid 24.03 points, or 0.77 percent, at 3,093.70.
In the oil markets, developments in Europe overshadowed any bullish sentiment generated by government data that showed U.S. crude inventories fell by 2.45 million barrels last week, against analyst expectations of an increase.
Brent crude oil, the global benchmark, pared a good deal of its losses late in the session.
Brent futures fell 41 cents to settle at $110.04 a barrel. U.S. light sweet crude oil fell $1.39 to settle at $89.98 a barrel.
"It is 'risk off' today," said Olivier Jakob, energy analyst at Petromatrix in Zug, Switzerland. "The Greek strike and Spanish demonstrations are getting a lot of coverage."