Global stocks fell on Tuesday after data showed the U.S. economy grew more slowly than expected in the third quarter, while the euro rose against the dollar after the IMF unveiled a liquidity line that stemmed fears about the spread of the European debt crisis

The euro climbed above $1.35 after the International Monetary Fund beefed up its lending instruments and unveiled a new six-month liquidity line to help countries with solid policies that may be at risk from the euro zone crisis.

Record-high yields at a Spanish debt auction helped drive down European shares for a fourth straight session, and data showing the U.S. economy grew at a slower pace than previously estimated also weighed on Wall Street shares.

Trade in the euro was volatile as high borrowing costs for both Spain and Italy were viewed by many investors as unsustainable. With little confidence in official efforts to build a bailout fund big enough to rescue the countries, trust between banks holding their debt vanished, causing lending to dry up.

Euro-zone banks increased their borrowing at the European Central Bank to the highest level in two years on Tuesday.

In the United States, the government said the U.S. economy grew at a 2 percent annual rate in the third quarter, below the initial estimate of a 2.5 percent growth rate and below expectations for a 2.5 percent reading.

U.S. economic data proved a huge miss, which does not contribute to positive sentiment, said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York.

An hour ahead of the market close, the Dow Jones industrial average <.DJI> was down 44.58 points, or 0.39 percent, at 11,502.73. The Standard & Poor's 500 Index <.SPX> was down 3.60 points, or 0.30 percent, at 1,189.38. The Nasdaq Composite Index <.IXIC> was up 2.52 points, or 0.10 percent, at 2,525.66.

The S&P, which had already fallen through a key support level of 1,200, fell to around 1,181 before recovering in an effort to stay above 1,187 -- the next technical support for the index, which represents a 61.8 percent retracement of the 2011 high-to-low.

Shares of computer and printer maker Hewlett-Packard Co slid 2.2 percent to $26.25. The stock fell 4 percent earlier to become the Dow's worst performer after HP gave a 2012 profit outlook that was below consensus.

Concerns that politicians are failing to tackle huge debt burdens also weighed a day after a special U.S. congressional committee said it failed to reach a deal on reducing government deficits. Investors are worried the stalemate will make it more difficult to pass extensions of measures like payroll-tax cuts that could help stimulate the economy.

The release of minutes from the Federal Reserve's meeting earlier this month had little impact on markets. The minutes showed that most policy makers supported providing the public with more detail about the likely path of monetary policy and interest rates but rejected the idea of tying their actions to targets for growth or the price level,

In Europe, the FTSEurofirst 300 index <.FTEU3> ended down 0.6 percent at 914.19. An index of world stocks, measured by MSCI <.MIWD00000PUS> shed 0.1 percent.

U.S. BOND PRICES DIP

U.S. Treasuries' prices also edged lower despite the disappointing data on third-quarter growth, as bond market investors focussed on underlying data showing weak inventory accumulation amid sturdy consumer spending as indications that growth would pick up in the current quarter.

Real final sales were up 3.6 percent so the engine of growth continued to hum, and weakness in inventories should set up a rebound that will boost overall growth to about 3 percent in the fourth quarter, said Thomas Simons, money market economist at Jefferies & Co in New York.

The benchmark 10-year Treasury note reversed early losses to gain rose 6/32 in price, yielding 1.94 percent versus 1.95 percent on Monday.

Commodities prices rose, with oil up in choppy trade as efforts to strengthen sanctions on Iran and unrest in the region hiked the geopolitical fear premium and offset worries about global economic growth. U.S. crude oil settled at $98.01 a barrel, up 1.12 percent and snapping a three-day losing streak.

Copper prices also rose on signs of stronger buying interest, particularly from Asia, and gold prices climbed.

SPAIN PUTS STRAIN ON EUROPE'S BANKS

In government debt markets, Spain's Treasury paid the highest yields in 14 years to issue short-term bills, heaping pressure on centre-right Prime Minister-elect Mariano Rajoy to soothe nervous markets by fleshing out austerity plans following Sunday's emphatic election victory.

Money market funds have cut their total exposure to European banks by 42 percent since the end of May, straining those banks' funding capabilities and forcing them to go to the European Central Bank as its lender of last resort for short-term funds, according to a report from Fitch Ratings.

The ECB's weekly limit-free handout of funding underscored the widespread problems on Tuesday with 178 banks requesting a total of 247 billion euros (213 billion pounds). That was the highest since mid-2009.

Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest-rate expectations and banks' appetite for lending, fixed unchanged at 1.467 percent just before the results of the ECB's operation.

Six-month rates edged up to 1.695 percent from 1.694 percent while 12-month rates were fractionally higher at 2.030 percent, from 2.029 percent.

(Reporting by Barani Krishnan; Additional reporting by Ryan Vlastelica, Jeremy Gaunt, Brian Gorman and Emelia Sithole-Matarise; Editing by Leslie Adler.)