Markets turned lower Friday despite solid U.S. jobs figures as worries over Italy's debts grew after global leaders failed to agree on how to increase the firepower of the International Monetary Fund.
Most market attention centered on Europe's debt crisis and the news that the Group of 20 leaders have yet to provide flesh to their ambitions to boost the IMF's financial strength did little to boost confidence. Market sentiment had been buoyed earlier by relief that Greece will not hold a referendum on its latest rescue deal, which would have endangered Europe's crisis-fighting efforts.
Athens remains a key focal point, but Italy is slowly becoming the main market worry as it is considered to be to big to bailout, even with an expanded eurozone bailout facility.
Italy's borrowing costs have spiked higher towards levels that forced Greece, Ireland and Portugal to be bailed out. The yield on Italy's ten-year bond is up another 0.32 percentage point at 6.43 percent, a new euro-era high. A yield above 7 percent is widely thought to be unsustainable.
News that Italy's Premier Silvio Berlusconi, who is trying to push through his third austerity package in less than six months, has asked the IMF to help monitor its economic and fiscal reforms has only reinforced market worries over the country's debt burden, which stands at around 120 percent of national income, the second highest in the eurozone behind only Greece.
What's particularly concerning is that Italy's borrowing costs have spiked higher, even though the European Central Bank has been buying the country's bonds in secondary markets in an attempt to keep the yields down.
"The risks associated with Italy have increased markedly over the past week or so," said Jeremy Batstone-Carr, director of private client research at Charles Stanley.
Those concerns offset any remaining relief from Greece's abandoned referendum.
In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 5,526, while Germany's DAX fell 2.5 percent to 5,978. The CAC-40 in France was 1.6 percent lower at 3,142.
In the U.S., the Dow Jones industrial average was down 1.3 percent to 11,866 while the broader Standard & Poor's 500 index fell 1.4 percent to 1,243.
The retreat in stocks pushed the euro lower _ when sentiment is buoyant the currency often advances as it did on Thursday. It was trading 0.6 percent lower at $1.3742.
Though most markets were pointing lower, the retreats are less than those that greeted Greece's Prime Minister George Papandreou's pledge on Monday to hold a referendum. His plan stoked investor fears of a disorderly Greek debt default and the country's possible exit from the eurozone.
Pressure from France and Germany, and an apparent concession from Greece's main opposition party to back the elements of last week's euro130 billion ($179 billion) rescue deal, saw Papandreou shelve the referendum pledge on Thursday.
That drove markets higher on Thursday and into Friday's trading session in Asia, though uncertainties over Greece remain _ Papandreou's government faces a confidence vote in Parliament later in the day.
"The situation in Greece continues to act as a backdrop to markets though there does seem a greater semblance of calm ahead of tonight's key confidence vote in the Greek parliament, which Papandreou could well lose, given the events of the last 48 hours," said Michael Hewson, market analyst at CMC Markets.
Figures showing that the U.S. economy added only 80,000 jobs in October, below market expectations for a 100,000 improvement, had little market impact as the previous months' improvement were revised up and the unemployment rate actually ticked down to 9 percent from 9.1 percent.
"While the market pessimism of August and September was clearly overblown, and the double-dip scenario is now comfortably off the table, jobs growth needs to accelerate further for a cyclical recovery to become well established," said Michael Woolfolk, an analyst at Bank of New York Mellon.
Earlier in Asia, stocks ended a four-day losing streak following Thursday's recovery in Europe and the U.S. Japan's Nikkei 225 index rose 1.9 percent to close at 8,801.40. Hong Kong's Hang Seng jumped 3.1 percent to 19,842.79. South Korea's Kospi gained 3.1 percent to 1,928.41.
Mainland Chinese shares tracked advances in the region, with the benchmark Shanghai Composite Index adding 0.8 percent to 2,528.29 while the Shenzhen Composite Index gained 0.6 percent to 1,071.34. Benchmarks in Australia, Singapore, Taiwan, India, Indonesia and Thailand also rose.
Oil prices tracked equities lower _ benchmark crude for December delivery was down 94 cents at $94.13 in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.