The euro and U.S. equities slid on Tuesday as hopes faded that there will be a deal to restructure Greece's debt in coming days and on weak U.S. economic data.
Although there had been optimism earlier in the day that the talks between Greece and its private debt holders would soon bear fruit, the sentiment reversed as investors took a dimmer view of the effectiveness of Monday's European Union summit.
A steeper-than-expected decline in U.S. home prices in November and a souring in consumer confidence in January also weighed on markets, highlighting the hurdles for the economic recovery in the United States, the world's largest economy.
Although the EU summit did result in an agreement on a permanent bailout fund mechanism, the meeting produced little in the way of results to convince markets that European leaders were truly resolving the region's debt crisis.
I just don't see the optimism coming from the summit, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. It was the bare minimum. The Greece situation is not resolved.
Earlier on Tuesday, stocks and commodities had climbed after Greek Prime Minister Lucas Papademos late on Monday said he hoped to reach a deal with private creditors over restructuring 200 billion euros of debt by the end of the week.
Near-bankrupt Greece struggled to show its foreign lenders that it can ram through spending cuts and labor reform in exchange for a crucial debt swap deal and a 130 billion euro bailout package needed to avoid an unruly default in March.
The euro fell 0.39 percent against the dollar to $1.3074, but it was on track to close out January up 0.9 percent against the greenback, its first monthly advance since October.
Against the yen, the euro fell to 99.68, tracking a rise of 0.19 percent this month.
The dollar also fell against the yen, under pressure after the U.S. Federal Reserve said last week it was likely to keep interest rates near zero until late 2014.
The greenback slipped as low as 76.13 yen, its lowest since Japan intervened in currency markets in late October and stoking fears the central bank could step into markets again.
More recently, the U.S. dollar was off 0.05 percent to 76.25 yen. The dollar's 0.87 percent loss against the yen in January extended two straight months down against the Japanese currency.
On Wall Street, stocks fell, hurt by the disappointing economic data and by an unclear earnings season picture. Stocks have rallied sharply since last year, partly on hopes the U.S. economy will dodge a recession in Europe.
The consumer confidence decline sort of lends credence to this argument that the bears have been using - that the only thing that has been creating better economic numbers has been inventory restocking and once the restocking is done the feeling is that it was a temporary blip, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
So once you start to get some negative numbers, especially around the consumer, it lends to the argument that GDP growth is not really there and it is going to go back to zero.
The Dow Jones industrial average .DJI dropped 57.06 points, or 0.45 percent, to 12,596.66. The Standard & Poor's 500 Index .SPX dropped 3.90 points, or 0.30 percent, to 1,309.11. The Nasdaq Composite Index .IXIC dropped 5.29 points, or 0.19 percent, to 2,806.65.
Earnings of Exxon Mobil Corp (XOM.N), the world's largest publicly traded oil company, narrowly beat expectations, but production fell short of some estimates and its shares fell 2.1 percent.
According to Thomson Reuters data, only 60 percent of companies in the S&P 500 that have reported results have topped Wall Street expectations, below the beat rate in recent quarters at this stage of earnings season.
The S&P is on pace for a 4 percent monthly gain in January, its best month since October, on the last trading day of the month. The Dow is up 3 percent, on track for its fourth straight monthly gain, while the Nasdaq is up 7.6 percent.
Robert Sluymer, a technical analyst at RBC Capital in New York, said depressed U.S. interest rates and a stall in gains in the price of copper, a key industrial metal, are pointing to a short-term reversal in economically sensitive sectors, such as materials and banks, that have led the rally.
More evidence of the pullback or pause continues to develop, led by banks, with global growth themes, represented by copper, just beginning to pause under resistance at its 200 day moving average, he wrote in a research note. Bond yields have still yet to confirm the pro risk rebound.
European stocks closed higher on renewed hopes for a Greek debt deal, though the weak U.S. data capped gains.
The FTSEurofirst 300 .FTEU3 index of top European shares rose 0.6 percent to close at 1,037.05 points and post a 3.6 percent gain in January.
MSCI's all-country world stock index .MIWD00000PUS rose 0.12 percent to 316.04, buoyed by an early rally in Asia. Emerging markets .MSCIEF continued to rally, up 1.1 percent.
Brent crude and U.S. crude turned lower to hover near break-even as the disappointing U.S. data reined in prices.
Brent March crude was around flat at $110.75 a barrel. U.S. light sweet crude oil fell 0.6 percent to $98.19 per barrel.