World stocks were mixed and the euro slipped on Friday as worries about downgrades of weaker euro zone countries curbed risk appetite, pushing aside an improved outlook on the U.S. economy.
Volume was light across financial markets heading into the weekend. Trading was choppy as perceived risky assets gave up much of their initial gains.
Anxiety over potential ratings downgrades in European sovereign debt and their repercussion on the region's banks underpinned safety bids for U.S. and German government bonds.
Fitch Ratings on Friday placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on watch for possible downgrade. It affirmed France's top-notch AAA-rating and changed its outlook to negative from stable. This latest rating agency move trumped optimism about the U.S. economy following recent upbeat data.
Government data released on Friday showed U.S. inflation pressure waning, fanning expectations the Federal Reserve could do more to boost economic growth. The latest consumer price report followed data on Thursday suggesting a possible pick-up in job growth, which has been meagre during the current recovery.
Investor fears about the euro zone debt crisis persist as European leaders have not delivered more measures to contain the crisis after promising increased fiscal disciple at a summit in Brussels last week.
There remains a great deal of concern about the direction of the euro zone, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. We're still not trading on fundamentals and haven't been for some time.
The MSCI world equity index <.MIWD00000PUS> rose 0.13 percent after hitting a three-week low on Thursday. The index is still down 3.6 percent on the week.
In afternoon trading, the Dow Jones industrial average <.DJI> was up 2.16 points, or 0.02 percent, at 11,870.97. The Standard & Poor's 500 Index <.SPX> was up 4.82 points, or 0.40 percent, at 1,220.57. The Nasdaq Composite Index <.IXIC> was up 17.37 points, or 0.68 percent, at 2,558.38.
European stocks <.FTEU3> ended down 0.5 percent, erasing their earlier gains on selling tied to expiration of equity derivative contracts. They were set to fall 2.9 percent on the week.
Tokyo's Nikkei <.N225> ended up 0.3 percent, reducing its weekly drop to 1.6 percent.
The euro clung to the $1.30 area versus the dollar after falling to 11-month lows on Wednesday. The 17-nation currency was last down 0.1 percent against the greenback at $1.3006 after touching an earlier high of $1.3084. It lost about 2.5 percent against the dollar on the week.
PERIPHERAL YIELDS STAY HIGH
Long-term borrowing costs for Italy and Spain, whose heavy debt loads have worried investors and rating agencies, fell early in the trading day. That helped to steady the euro and briefly boosted European shares.
But they gradually ratcheted back up to alarmingly high levels, with the yield on 10-year Italian government bonds creeping above 7 percent, which analysts deem unsustainable for the euro zone's third-biggest economy to pay.
Italy faces a confidence vote in parliament, called to speed up approval of a 33 billion euro ($43 billion) austerity package aimed to restore investor confidence.
Amid these political developments, worries linger about the euro zone debt crisis and have supported U.S. Treasuries and German Bunds. They pushed aside optimism about the U.S. economy and hopes the European Central Bank will ultimately step in to buy bonds of troubled euro zone peripheral countries.
Bund futures were up 1.11 points at 138.74, ending at their highest level in four weeks. Benchmark 10-year Treasury notes were up 13/32 in price for a yield of 1.86 percent, revisiting their lowest levels in early October.
Gold, another traditional safety play, snapped a four-day losing streak tied to fund liquidation.
Spot bullion in London was last up 1.5 percent at $1,593.69 an ounce after touching the lowest level since late September on Thursday. For the week, gold is poised to fall 6.8 percent, the biggest weekly decline since late September.
The oil market struggled to hold early gains on nagging worries about a global economic slowdown. February Brent crude futures were down 68 cents at $102.92 a barrel, while spot U.S. oil futures were down 81 cents at $93.05, breaking falling below their 300-day moving average.