A global stocks rally ran out of steam yesterday, with markets sliding in much of Europe and on Wall Street on news of weaker-than-expected US consumer spending in April.
The euro too lost ground in late day trade, falling to $1.2335 from 1.2354 on Thursday. Against the yen the dollar dropped to 90.90 from 91.03.
Market sentiment was dented by a report from the US Commerce Department that consumer spending was flat in April, after six straight monthly gains and despite predictions from analysts of a rise.
"Households have decided that a penny earned should become a penny saved and that is what they did in April," said Joel Naroff of Naroff Economic Advisors.
"Consumers, who need to pick up the pace if growth is going to look half decent this quarter, may not be in a mood to open their wallets wide enough to match their spending increase posted in the first quarter."
The spending data helped shore up the dollar as nervous investors, seeing a possible constraint to the US recovery, shed currencies considered risky, such as the euro.
Following two days of robust gains, as anxiety over Europe's debt crisis subsided, several European stock exchanges skidded downward yesterday.
The London FTSE 100 index slipped 0.13 per cent to finish at 5,188.43 points while in Paris CAC 40 fell 0.29 per cent to finish at 3,515.06. In Frankfurt, however, the DAX edged up 0.15 per cent to 5,946.18.
Elsewhere there were declines of 0.79 per cent in Milan, 0.37 per cent in Brussels and 0.16 per cent in Amsterdam. Madrid gained 0.79 per cent and the Swiss Market Index 0.27 per cent.
US stocks also retreated yesterday.
The Dow Jones Industrial Average fell 0.61 per cent at 10,196.03 at mid-day while the tech-heavy Nasdaq had lost 0.68 per cent to reach 2,262.19.
Wall Street was in vacation mode at the traditional start to the US summer holiday season on this long weekend. Monday's Memorial Day federal holiday honours those who died in military service.
The selling trend followed a powerful rebound on Thursday from recent steep falls, spurred by China's reassurances about its euro investments.
European bond prices were stable after a series of turbulent market sessions in recent weeks.
"Calm has returned," said Cyril Beuzit of the bank BNP Paribas.
"Things have quieted down in these last two sessions, which have not been affected by rumours."
The yield on the benchmark 10-year German Bund fell to 2.670 per cent from 2.705 per cent on Thursday, indicating an easing in tension.
Yields also narrowed on 10-year sovereign bonds issued by Greece, Spain and Portugal, three eurozone members struggling to contain public debt and deficits and have faced an erosion in market confidence.