U.S. and European shares retreated on Monday and the euro slipped as investors cast doubt on efforts to tighten fiscal rules in the euro zone that aim to prevent the region's debt crisis from deepening.
In addition, European finance ministers looked unlikely to reach a target to boost resources from the International Monetary Fund by up to 200 billion euros after Britain said it would not take part in a plan aimed specifically at helping the euro zone through its problems.
In a three-hour conference call the finance ministers assessed plans for a new fiscal compact they hope to wrap up by the end of January, EU officials said.
U.S. stocks skidded, and European shares closed lower in thin trade as weak Chinese housing data fueled worries about demand and hurt mining stocks. A further fading of optimism about a solution to the debt crisis also weighed on share prices.
Comments by Mario Draghi, president of the European Central Bank, weighed on sentiment after he said the euro zone's economic outlook faced substantial downside risks. He also said that 2012 would be a difficult year for banks.
Even though he's not calling for that, he highlights it, it's a negative story, and the market reacts to the negative headline, said Ken Polcari, managing director at ICAP Equities in New York.
Shares of the biggest U.S. financial institutions dropped sharply, with Bank of America Corp
The Dow Jones industrial average <.DJI> was down 39.17 points, or 0.33 percent, at 11,827.22. The Standard & Poor's 500 Index <.SPX> was down 7.41 points, or 0.61 percent, at 1,212.25. The Nasdaq Composite Index <.IXIC> was down 12.20 points, or 0.48 percent, at 2,543.13.
The FTSEurofirst 300 index <.FTEU3> of European shares fell 0.1 percent to close at 957.45 points.
Concerns about the debt crisis kept the euro near 11-month lows, while the dollar received a safety bid as investors reacted to the uncertainty created by the death of North Korean leader Kim Jong-il.
The euro also came under pressure after Fitch warned late Friday that it could downgrade France and six other euro zone countries because a comprehensive solution to the debt crisis is technically and politically beyond reach.
MSCI's all-country world equity index <.MIWD00000PUS> was down around 0.1 percent.
The euro lost about 0.2 percent at $1.3011 versus the dollar. It had hit an 11-month low last week of $1.2945.
U.S. government debt prices rose as the declines in equity markets boosted the bid for safe-haven U.S. government debt.
The benchmark 10-year U.S. Treasury note was up 7/32, with the yield at 1.83 percent.
Oil prices pared gains, with U.S. crude trading near break-even.
Brent crude futures were 79 cents up to $104.14 a barrel. U.S. crude futures rose 53 cents to $94.06 a barrel.
Spot gold prices fell $1.90 to $1,595.50 an ounce.
(Reporting by Herbert Lash; Editing by Kenneth Barry, Dan Grebler, Leslie Adler)