Global equity markets and the euro slid on Wednesday after the European Central Bank's buying of regional sovereign debt failed to stem a bond sell-off in the euro zone or to calm fears the debt crisis was spreading.
The euro fell for a third straight session against the dollar to hit a five-week low as investors doubted the ability of governments in the euro zone to contain the crisis,
The ECB's buying of Italian and Spanish bonds brought only temporary relief in the markets and yields resumed climbing once the intervention stopped.
Markets are slowly losing their will to believe in an EU solution and this is being reflected in the debt market, said Paul Bregg, a currency trader at Western Union Business Solutions in Denver, Colorado.
Some European stock markets rebounded to close slightly higher on Mario Monti's move to form a new technocrat government in Italy and a pledge by Greece's LAOS party to give unconditional support to the new Greek prime minister.
The FTSEurofirst 300 index <.FTEU3> of top European shares edged 0.04 percent higher to end at 970.60.
Wall Street attempted a rebound, briefly turning positive before moving sharply lower in late trade, and the euro pared almost all its losses at one point.
It's a see-saw session with Europe. One day it looks like we're going to get closer to some sort of resolution, then the next day there's some sort of opposition that's deterring it, said James Newman, head of Treasury and agency trading at Keefe, Bruyette and Woods in New York.
French borrowing costs rose, with the yield premium of the French 10-year government bond over German Bunds rising to a euro-era high near 2 percent.
France has become the latest target of investor unease as a solution to the region's two-year debt crisis remains elusive. Contagion from the crisis has spread to other top-rated sovereign issuers such as the Netherlands and Austria.
U.S. stocks fell as the impact of Europe's debt crisis on the global economy unnerved investors.
The Dow Jones industrial average <.DJI> was down 149.02 points, or 1.23 percent, at 11,947.14. The Standard & Poor's 500 Index <.SPX> was down 16.14 points, or 1.28 percent, at 1,241.67. The Nasdaq Composite Index <.IXIC> was down 36.02 points, or 1.34 percent, at 2,650.18.
The market shrugged off data showing U.S. consumer prices fell last month for the first time in four months as Americans paid less for new cars and gasoline. But prices outside of food and energy posted a slight increase, the Labour Department said.
The U.S. Dollar Index <.DXY>, a basket of major trading-partner currencies, was up 0.3 percent at 78.102.
Obviously the debt crisis is front and centre but the data here is improving, which should provide a bit more tail wind for the dollar, said Omer Esiner, senior market strategist at Commonwealth Foreign Exchange in Washington.
U.S. Treasuries prices gained as Europe's government debt market was again hit with a sell-off.
The benchmark 10-year U.S. Treasury note was up 11/32 in price to yield 2.01 percent.
Brent crude fell on worries the debt crisis will slow economic growth.
There's a focus on sovereign debt yields; they are still a concern and they are driving prices, said Olivier Jakob at Petromatrix in Zug, Switzerland.
But U.S. crude futures rose above $102 a barrel on news that owners of the Seaway pipeline plan in 2012 to reverse the flow of oil, a move that would relieve an oil glut in Cushing, Oklahoma, the delivery point for New York futures contracts.
Brent crude for January delivery settled down 30 cents at $111.88 a barrel.
U.S. January crude settled up $3.22 at $102.59, which sent the trans-atlantic arbitrage tumbling to $9.28.
Gold fell, pressured by easing U.S. consumer prices and uncertainty after a clash between France and Germany over whether the European Central Bank should do more to stem the region's debt crisis.
U.S. gold futures for December delivery settled down $7.90 at $1,774.30 an ounce.
(Reporting by Wanfeng Zhou, Chris Reese, Caroline Valetkevitch, Rodrigo Campos and Frank Tang in New York; Writing by Herbert Lash; Editing by James Dalgleish and Dan Grebler)