Fears about the world economic outlook hurt global shares on Thursday as the euro fell to a new two-year low and investors pushed into safe-haven U.S. government bonds.
U.S. benchmark debt yields neared historic lows as prices extended gains in the afternoon after the sale of $13 billion (8.42 billion pounds) of reopened 30-year Treasury bonds brought a record low auction yield.
Jitters about what the euro zone crisis and softer economy will mean for company profits bruised Wall Street, though stocks came off their lows on a rally in Procter & Gamble .
"The (bond) price strength continues," said Mary Ann Hurley, vice president for fixed income trading at D.A. Davidson & Co in Seattle.
"Europe unquestionably continues to be a factor, but now the viewpoint is shifting to one that the global economy is slowing down greatly and that many central banks are going to have to conduct additional (monetary) easing moves."
There was some solace from data that showed the number of Americans applying for jobless benefits fell last week to a four-year low, though some of that improvement may be temporary.
But analysts said it did little to sway the view the economic recovery has hit a soft patch.
The weaker-than-expected start to the second-quarter U.S. corporate reporting season, combined with expectations of slower economic growth in the world's leading economies, had encouraged hopes the Federal Reserve would resume a policy of creating money to lower long-term interest rates, known as quantitative easing, or QE3.
A surprise rate cut in South Korea on Thursday following a 50-basis-point cut by Brazil on Wednesday evening also underscored the growing impact the slowdown was having worldwide.
But the lack of monetary easing by the Bank of Japan on Thursday and limited clues in the latest minutes from the Fed's June policy meeting, released on Wednesday, suggest central banks are still cautious about the need for further easing.
The Fed minutes showed the world's biggest economy would have to weaken further before its central bank takes any more easing steps. The minutes did, however, show some officials felt more stimulus was justified.
The dimmed hopes for fresh stimulus in the near-term also undermined market sentiment.
"The consensus of the market is it's still on table. What is unknown is the trigger for a QE3 move from the Fed," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
The euro fell 0.3 percent to $1.2205, after an earlier drop to $1.2165 on Reuters data, the weakest since the end of June, 2010.
The greenback benefited from its safety appeal and the dollar index, which tracks the greenback versus a basket of six currencies, rose to 83.829 <.DXY>, the highest since July, 2010. It was last up 0.1 percent at 83.608
The FTSE Eurofirst 300 index <.FTEU3> ended down 1 percent, while the MSCI world equity index <.MIWD00000PUS> was down 1.1 percent, its seventh day of declines in a row.
The Dow Jones industrial average <.DJI> slipped 31.26 points, or 0.25 percent, to 12,573.27. The Standard & Poor's 500 Index <.SPX> fell 6.69 points, or 0.50 percent, to 1,334.76. The Nasdaq Composite Index <.IXIC> lost 21.79 points, or 0.75 percent, to 2,866.19.
Technology shares have been among the worst performers recently, bogged down by profit warnings from companies such as Advanced Micro Devices Inc and Applied Materials Inc . For the month, the S&P technology sector <.GSPT> is down 3.5 percent and the PHLX semiconductor sector <.SOX> has lost 8.2 percent.
"I think it is the fear that technology companies are going to miss estimates" this earnings period, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
Benchmark 10-year notes were trading 11/32 higher in price to yield 1.48 percent, down from 1.52 percent late Wednesday. The 10-year yield is within striking distance of the 1.44 percent level touched in early June, which is the lowest going back to the early 1800s, based on data gathered by Reuters.
Oil prices turned around in afternoon trading, with Brent crude jumping above $101 a barrel after the United States announced it was tightening sanctions against Iran.
Brent crude oil shot up to a session high of $101.36 a barrel and was recently up 53 cents at $100.76. U.S. crude ended up 27 cents to settle at $86.08 a barrel.
But gold failed to benefit from the flight to safety as it was hurt by the rise in the dollar. Spot gold was down 0.6 percent at $1,567.02 an ounce. U.S. COMEX gold futures for August delivery settled down $10.40 at $1,565.30 an ounce.
(Additional reporting by Jason Lange in Washington and Julie Haviv, Caroline Valetkevitch and Chris Reese in New York; Editing by Dan Grebler)