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Stocks on Wall Street fell the most in more than a month on a dismal reading of consumer borrowing and official warnings of both weak growth and a rise in interest rates.
Thomas Hoenig, president of the Kansas City Federal Reserve, said policy makers could raise the benchmark rate target from near zero toward 1% without hampering a US recovery.
Earlier, Fed chairman Ben Bernanke said the US economy appeared to have stabilised, although it was still hampered by high unemployment and a weak housing market.
On top of this, the Fed released data showing that consumer borrowing fell $US11.5 billion in February, a much bigger decline than Wall Street was expecting.
The Dow Jones Industrial Average plunged 72.47 points, its worst one-day decline since February 23, ending at 10,897.52, off 0.7%. It traded in the red for all of the session, though it nearly reached break-even following a well-bid auction of 10-year Treasury notes, which temporarily eased traders' recent fears of higher borrowing costs.
The Nasdaq Composite Index fell 0.2% to 2431.16 while the S&P 500 index shed 0.6% 1182.45, hit by selling in every sector.
European stocks edged lower as growing concern about Greece's ability to finance its debt and downbeat economic data undermined investor optimism.
Stocks in Athens dropped nearly 3%, with big banks leading the decline. The government has denied reports that it is trying to exclude the IMF from its rescue package, but it boosted fears the matter is not yet settled.
Latest economic data showed growth in the euro zone stalled in the fourth quarter of 2009, with output in seven of its 16 members falling.
In election-mode Britain, services data for March was weaker than anticipated.
On the corporate front, French carmaker Renault shares declined 1% after agreeing with its partner Nissan on a share swap deal with Germany’s Daimler, which lost 0.2%.
Daimler and the Renault-Nissan tandem have agreed to joint development of new small cars and light trucks as well as to share power trains.
In a €1.2 billion share exchange, Daimler will own 3.1% each of Renault and Nissan, while the two companies, which already own stakes in each other, will own a combined 3.1% of Daimler. The two sides estimate cost and revenue gains at €2 billion each over five years,
The Stoxx Europe 600 Index closed down 0.3% at 268.61. The UK's FTSE 100 Index fell 0.3% to 5762.06, France's CAC-40 lost 0.7% lower at 4026.97 and Germany's DAX lost 0.5% to 6222.41.
In Asia, resources shares rallied in Hong Kong, strength in the financial sector lifted stocks in Japan, but Chinese property developers fell on fear of further monetary tightening.
Japan's Nikkei Stock Average of 225 companies closed 0.1% higher at 11292.83, China's Shanghai Composite fell 0.3% to 3148.22 and Hong Kong's Hang Seng Index climbed 1.8% to 21928.77 in its first day of trading since last Thursday.
Australia's S&P/ASX 200 added 0.2% to 4960.91, Korea's Kospi Composite finished nearly flat at 1726.60, India's Sensex Index rose 0.2% to 17,970.02 and Singapore's Straits Times Index added 0.4% to 2988.10,
Commodities: Oil down, gold up
Oil futures dropped after the US government reported an unexpectedly large inventory increase.
Light, sweet crude for May delivery settled 96USc, or 1.1%, lower at $US85.88 a barrel in New York. Brent crude on the ICE futures exchange traded 56USc, or 0.7%, lower at $US85.59 a barrel.
Gold futures advanced, continuing their rally despite a stronger US dollar.
The most-active June contract was up $US17, or 1.5% at $US1153 an ounce in New York, while thinly traded April futures were up $US17.20, or 1.5%, at $US1152.30.
Currencies: Dollar up, euro down
The US dollar rose to a new 11-month high against the euro and gained on most major currencies.
The euro fell for a third day, changing hands at $US1.3364, down from $US1.3398 late on Tuesday. It touched $US1.3325 during the session, which would be the lowest on a closing basis since early May.
The British pound also lost further ground to $US1.5246, down from $US1.5276.
Against its Japanese counterpart, the dollar erased an early gain to trade at ¥93.62, down from ¥93.83.