Global stocks retreated on Friday as uncertainty over Europe's festering debt crisis overcame an early bounce driven by better-than-expected US consumer sentiment, while oil prices fell after weak data from China reduced demand expectations.
Safe-haven government debt rose, with the yield on the benchmark 10-year US Treasury note falling for the eighth straight week. Whether Greece can remain in the euro zone and concerns about the health of Spanish banks spurred buying.
The euro retreated against the US dollar late in the session on news that the Greek Socialist party leader had been unable to form a national unity government after holding last-ditch talks with rivals.
Data showing US consumer sentiment rose to its highest level in more than four years in early May lifted shares earlier in the day, but concerns over Europe and JPMorgan Chase & Co's $2 billion trading loss led equity markets to retreat.
"Today there is a flight to safety; Greece is not resolved, Spain is not resolved," said Lou Brien, market strategist with DRW Trading Group in Chicago.
"And JPMorgan adds a bit of concern simply because they were assumed to be the well-run bank, and if this sort of thing could happen there, where else could it happen?" Brien said.
JPMorgan's stock fell 9.3% to $36.96, the biggest drag on the S&P 500 index. The next-biggest drag was Citibank, down 4.2% at $29.35.
The Dow Jones industrial average fell 34.44 points, or 0.27%, to close at 12,820.60. The Standard & Poor's 500 Index declined 4.60 points, or 0.34%, to 1,353.39. But the Nasdaq Composite Index inched up just 0.18 of a point, or 0.01%, to end at 2,933.82.
Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York, said JPMorgan will become a political issue.
"This will increase regulations on banks and the overhang on large banks will last for awhile," Ghriskey said.
The KBW index of large US financial services firms' shares fell 1.2%, and in Europe, the euro zone STOXX banking index fell 1%.
The euro slid to a 3-1/2-month low in volatile trade. The euro has dropped against the dollar in eight of the last 10 sessions for a cumulative 2.4% decline, hit by the turmoil in Greece.
The euro slid 0.12% to $1.2919, while the US dollar index rose 0.21% to 80.283. Against the Japanese yen, the dollar was down 0.03% at 79.90.
Europe stoked market jitters. The failure by politicians in Greece to agree on a new government sent the country hurtling toward a new vote, with radical leftists leading in the polls and poised to scrap a 130-billion-euro bailout that has staved off default.
The 10-year US Treasury note rose 9/32 in price to yield 1.84%.
European shares erased early losses to end higher on the US consumer sentiment data, although many investors remained wary over Spain's banks and Greece's political impasse.
The Greek stock market dropped to levels last seen 20 years ago during an earlier crisis over a mechanism to reduce exchange-rate swings in Europe before the euro's advent. German Bund futures rose as high as 143.09, up 48 ticks on the day.
The FTSEurofirst index of top European stocks rose 0.3% to close at 1,022.52.
The MSCI world equity index turned lower, falling 0.3% to 314.99.
Prices of crude oil, copper and gold all fell.
Brent crude oil prices fell below $112 a barrel early in the session after a weak reading of industrial growth in China sparked worries that demand may slow from the world's No. 2 oil consumer.
Chinese industrial output expanded in April at its slowest annual pace in nearly three years. When paired with poor trade figures from Thursday, the data suggest China's economy continues to slow after a weak first-quarter performance.
Brent crude futures for June delivery shed 47 cents to settle at $112.26 a barrel.
The US June light sweet crude contract declined 95 cents to settle at $96.13 a barrel.
Gold fell almost 1%, capping a 3.7% loss for the week, its biggest weekly decline this year.
US gold futures for June delivery slid $11.50 to settle at $1,584 an ounce.
