European shares fell and sterling slipped after the Bank of England said it was too early to tell how recent market turbulence would affect companies and households, and left interest rates on hold.
The European Central Bank also kept interest rates steady as expected. Investors are cautious ahead of the ECB's news conference at 8:30 a.m. (1230 GMT) and are also watching for a key U.S. services sector survey at 10 a.m. (1400 GMT) to see if a global credit crunch is hitting the real economy.
Overnight interbank lending rates fell sharply after the ECB provided more cash to the stressed money market, where banks have become wary of lending to each other as they scramble for cash to cover possible losses in complex credit products.
European shares erased early gains while Wall Street was set for a weaker open after the BoE broke tradition to comment on the market after a 'no change' policy announcement and noted market turbulence as well as signs of slowing consumer spending.
The very fact that the Monetary Policy Committee chose to issue a statement even though it left rates unchanged is a tacit acknowledgement that these are extraordinary times, Daragh Maher, senior currency strategist at Calyon.
The BoE is likely to explore options other than cutting the base rate if the initial aim is to restore the efficient functioning of the UK financial markets, or more accurately the money market. Yet the longer this strange environment persists, the greater the downside threat to activity and inflation.
The FTSEurofirst 300 index was down half a percent while MSCI main world equity index was slightly down on the day. U.S. stock futures were down across the board, pointing to a weaker start on the day on Wall Street.
The FTSEurofirst is up over 3 percent for the year, but is still down by more than 6 percent from 2007 highs set before the crisis in U.S. subprime lending triggered a rise in volatility and lending rates, forcing some U.S. mortgage lenders into bankruptcy and leading to losses at hedge funds and investors.
Asian stocks outside Japan, as measured by MSCI, ended up 0.65 percent. Tokyo stocks also rose.
Sterling fell around a third of a U.S. cent while short sterling futures turned positive after the BoE's statement. September futures on benchmark euro zone bonds were little changed.
SHORT-TERM MONEY CALMER
In the money market, London interbank offered rates for the euro fell 55 basis points at the daily fixing after the ECB injected liquidity a day after it pledged action to ease tensions on money markets.
Overnight lending rates for the dollar and sterling also fell, while three-month sterling rates hit a 9-year high as tension rose ahead of a crucial week for refinancing of maturing commercial paper, estimated to be more than $110 billion.
Simon Derrick, strategist at Bank of New York Mellon, said pricing on cash and futures money markets is implying that it would take at least six months for normal conditions to return in Europe.
Credit remains the basic lubricant for financial markets ... (Pricing on money markets is) a gloomy sign for investors. It certainly suggests that it will take an extended period of time for confidence to return to financial markets generally, Derrick said.
The widely watched iTraxx Crossover index, made up of 50 mostly junk-rated credits, widened slightly to 338 bps. The borrowing premium on emerging market sovereign bonds over benchmark U.S. Treasuries was unchanged at 233 bps.
Elsewhere, London Brent crude rose half a percent while gold hit a six-week high to $685.10 an ounce.