World stocks erased the year's gains o n Friday as investors fled risky investments for safe-haven assets on concerns about the euro zone's deepening debt woes, while US stocks lost ground after the debut of Facebook's failed to ignite optimism.
Brent crude closed at its lowest in 2012 as the euro zone crisis raised fears of a global slowdown that could dent oil demand, while German borrowing costs hit record lows.
World stocks, as measured by the MSCI index, dropped 1.1% and gave up all of their gains for the year to date fueled by the European Central Bank's injection of more than 1 trillion euros. It was a sixth day of losses for the index, which is now down 0.4% for the year.
Riskier assets were all heading for big weekly losses.
Investors were unnerved by a ratings downgrade of 16 Spanish banks by Moody's Investors Service, which deepened worries about the euro zone contagion. But market speculation that regulators could reinstate a ban on short selling of financial stocks sparked a rally in banking shares, with Spain's Banco Santander up 3%. US-listed shares of Banco Santander rose 3.6% to end at $5.76.
Spain's banks, saddled with bad loans after a property boom collapsed, may need a bailout that would strain Madrid's already stretched finances and possibly require an international bailout regardless of any contagion threat from Greece.
"Sentiments are still pretty negative," said Francis Rodilosso, portfolio manager with Market Vectors in New York. "People are definitely seeing the glass half-empty."
Ongoing political and financial turmoil in Greece has kept investors worried about its ability to remain in the euro zone.
A G8 meeting of leaders of major industrial economies this weekend is expected to tackle the crisis in Europe and look for ways to promote growth.
German bond yeild hit record
Benchmark 10-year German bond yields hit a record low of 1.396% and two-year yields also fell to their lowest-ever level at just 0.028%.
Safe-haven gold prices rose more than 1%, with spot gold at $1,588.96 an ounce.
In the US Treasury market, however, prices slipped as investors took profits a day after benchmark yields flirted with their lowest level in at least 60 years. Benchmark 10-year Treasury notes last traded down 5/32 at 100-12/32 in price to yield 1.71%, up 2 basis points from Thursday.
