World stocks, the euro and commodities fell on Thursday on concerns over a potential downgrade of Greece's debt, while borrowing costs for peripheral euro zone countries rose.
Safe-haven government bonds firmed.
Credit agency Standard & Poor's said on Wednesday it may downgrade Greece's BBB-plus rating by one or two notches within a month, citing downside risks to growth that could hinder the country's deficit-cutting plan.
Rival Moody's Investors Service said Greece would need to enact its fiscal reform plans as promised if it was to avoid a downgrade.
The comments overshadowed U.S. Federal Reserve Chairman Ben Bernanke's pledge on Wednesday to keep interest rates low for a long time.
The euro hit a one-year low against the yen and lost 0.3 percent against the dollar at $1.3493.
The low-yielding yen was the main beneficiary in Asian trade as risk aversion fueled a rally into the Japanese unit, forcing it to a one-year high against the euro.
The yen is in favor after sentiment deteriorated over Greece Wednesday. It does tend to strengthen when times get tough and I would also say the yen is likely to remain in favor going into the Japanese fiscal year-end, said HSBC director of currency strategy Paul Mackel.
The U.S. currency <.DXY> was also firmer against a basket of major currencies.
Borrowing costs for peripheral euro zone countries rose on concerns over Greece, with the 10-year Greek/German bond yield spread widening to 365 basis points (bps) from 342 bps on Wednesday.
The equivalent Spanish spread moved out by five bps to 81 bps as concerns grew that the country would become the next in the euro zone to struggle under the weight of a large budget deficit.
There's renewed focus again on sovereign risk and it's hurting the sovereign European countries (today), said Niels From, chief analyst at Nordea in Copenhagen. It remains a huge theme driving the market.
Yields on other 'safe-haven' bonds eased. The 10-year benchmark Bund eased 1 basis point to 3.120 percent, while 10-year U.S. Treasuries were down 3 bps to 3.666 percent.
World stocks measured in the MSCI All-Country World Index <.MIWD00000PUS> fell 0.4 percent and Greece's share benchmark <.ATG> was down 0.6 percent.
This keeps the tensions within the euro zone at the forefront of the minds of equity investors, and it will continue to burden equity markets, said Tammo Greetfeld, equity strategist at UniCredit Group.
The pan-European FTSEurofirst 300 <.FTEU3> lost 0.2 percent, though gains in bank shares, led by Royal Bank of Scotland
In Asia, Japan's Nikkei average <.N225> closed down 1 percent as the yen rose broadly.
Commodity prices were also down, with crude down 0.5 percent to trade below $80 a barrel and copper down 0.3 percent.
(Additional reporting by William James, Neal Armstrong and Brian Gorman in London; editing by John Stonestreet)