US stocks and the euro slid o n Wednesday on news that some Greek banks face emergency funding needs, while minutes from the Federal Reserve's April meeting showed US economic prospects remain sobering.
The European Central Bank stopped funding operations for some Greek banks as they are undercapitalized, the ECB said, confirming a Reuters report that fanned concerns about Greece's financial difficulties.
The report highlighted the weak state of the banking sector in Greece, where many Greeks are withdrawing money from banks out of fear their country may soon leave the euro zone.
The euro traded just below break-even and shares in Europe closed lower in choppy trade as worries mounted over the stability of the euro zone. Greece plans to hold elections in mid-June that will determine if Greece remains in the pact.
"People are waiting to see what will happen with Europe; the line in the sand for taking some kind of action is getting closer," said Reed Choate, portfolio manager at Neville, Rodie & Shaw in New York.
Choate said efforts by German Chancellor Angela Merkel and new French President Francois Hollande to quell talk of a possible Greek exit from the euro zone were positive, but the reported withdrawal of ECB funding weighed on markets.
US stocks retreated on the ECB news and minutes of the Fed meeting, which showed several members of the US central bank's policy-setting committee had indicated that additional monetary policy accommodation could still be necessary.
In late trade, the Dow Jones industrial average was down 22.40 points, or 0.18%, at 12,609.60. The Standard & Poor's 500 Index was down 4.57 points, or 0.34%, at 1,326.09. The Nasdaq Composite Index was down 16.05 points, or 0.55%, at 2,877.71.
The FTSEurofirst index of top European shares closed down 0.5% at 992.81.
MSCI's all-country world equity index was down 1% to 304.72.
US stocks retreated from gains spurred by data showing US industrial production posted its fastest growth in over a year in April and a surge in groundbreaking for new homes that suggested a rebound in US housing was gaining some traction.
The twin data points helped bolster investor sentiment that has been battered by fears Greece will depart the euro zone.
Bond prices rebounded after minutes from the policy meeting supported the notion that the Fed is willing to provide more stimulus if the US economy falters.
Benchmark US 10-year Treasury notes rose 3/32 in price to yield 1.76%. The 30-year US Treasury bond rose 14/32 in price to yield 2.90%.
The euro was down 0.04% at $1.2725. The dollar <.DXY> rose 0.2% to 81.361.
Crude oil futures tumbled as risk aversion spread across markets following the report on Greek banks.
Brent crude settled down 53 cents at $111.71 a barrel, while and US oil settled down $1.17 to $92.81 a barrel.