Global stocks faltered on Monday despite stronger-than-expected U.S. retail sales, while government debt prices rose as worries about Spain's fiscal problems and a resurgent euro zone crisis weighed on investor sentiment.
The dollar retreated against the euro and gold prices fell after Spain acknowledged it has probably tipped into its second recession since 2009.
Spanish 10-year government bond yields broke through the 6 percent mark for the first time since December, sparking a record-breaking rally in low-risk German debt.
Spanish yields were expected to continue rising toward 7 percent - a level beyond which debt costs are widely viewed as unsustainable - unless the European Central Bank resumes its bond purchases after a two-month break.
A further spike in Madrid borrowing costs would increase pressure on the European Central Bank to get involved to stem the tumult, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Concern is growing that the recession will make it impossible to meet deficit targets and that Spain will have to seek some form of international bailout even as the Spanish government says it is committed to making major budget cuts.
On Wall Street, strong March U.S. retail sales helped drive some gains, although market leader Apple dropped more than 4 percent. U.S. retail sales increased 0.8 percent after rising 1.0 percent in February, the Commerce Department said, as Americans shrugged off high gasoline prices.
The sales gain surpassed economists' expectations for only a 0.3 percent rise and could prompt analysts to raise their first-quarter economic growth forecasts of about 2.5 percent annually.
The Nasdaq fell sharply, weighed down by a 4.1 percent drop in Apple Inc
The Dow Jones industrial average <.DJI> closed up 71.82 points, or 0.56 percent, at 12,921.41. The Standard & Poor's 500 Index <.SPX> fell 0.69 points, or 0.05 percent, at 1,369.57. The Nasdaq Composite Index <.IXIC> slid 22.93 points, or 0.76 percent, at 2,988.40.
Credit default swap spreads are at record high levels and Spanish banks are having trouble getting money in the markets and are going to the European Central Bank instead. That is weighing on sentiment, Weinberg said.
Apple closed at $580.13 after hitting a record high last week of $644. Some investors said Apple, which is up 45 percent this year, broke a trend line on Monday at around the $596 level, leading to more profit-taking.
European shares regained poise as the U.S. retail sales data gave investors the excuse to jump back into an oversold asset class, partly eclipsing concern about Spanish debt.
The pan-European FTSEurofirst 300 <.FTEU3> closed 0.5 percent higher at 1,032.43.
The cost of insuring Spanish debt against default hit a record high at 522 basis points, meaning it costs $522,000 a year to buy $10 million (6 million pounds) of protection, according to data from Markit.
German Bund futures rose to a new high of 140.56, up 20 ticks on the day, while 10-year German Bund yields set a record low earlier in the session at 1.622 percent.
The mixed performance in the stock market also initially supported U.S. government debt prices. But the benchmark 10-year U.S. Treasury note pared gains to finish the session unchanged in price to yield 1.99 percent.
The late-day price pullback was a case of profit-taking, said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle.
At the yield levels that we have fallen to, we need further reasons to tack on additional price gains, she said.
The euro rallied, recovering from multi-month lows against the dollar and yen in largely technical trading after it held key support levels ahead of a Spanish debt auction later this week.
The euro last traded up 0.5 percent against the dollar at $1.3137. Earlier, it dropped to a two-month trough of $1.2993 and below reported options barriers at $1.30.
Oil futures tumbled more than 2 percent on news of a major reversal of oil flow through a pipeline that is planned to alleviate a large U.S. bottleneck may start two weeks ahead of schedule.
The premium of international benchmark Brent to U.S. oil futures crashed by more than $2.50 a barrel to the lowest level since February after filings by Enterprise Product Partners
A glut of crude in the Midwest from rising Canadian and North Dakota oil production has inflated inventories in Cushing, Oklahoma and depressed U.S. oil futures relative to Brent for over a year.
In London, Brent crude for June delivery fell $2.53 to settle at $118.68 barrel.
U.S. crude for May delivery, which expires on Friday, traded higher, settled up 10 cents at $102.93 a barrel.
U.S. gold futures for June delivery settled down $10.50 an ounce at $1,649.70.
(Additional reporting by Richard Hubbard in London; Editing by Leslie Adler)