Weaker than expected U.S. retail sales figures dented market confidence Tuesday after another mass downgrade of the creditworthiness of European countries had little impact.
Figures showing that retail sales in the U.S. rose by 0.4 percent in January, half the anticipated amount. That prompted a reverse in stock markets, which had earlier shown resilience to Moody's decision to downgrade six EU countries and its accompanying warning that top-rated Britain, France and Austria could see their ratings cut too.
Following a downwardly revised flat reading for December, the retail sales figures proved a disappointment in the markets, especially in light of the recent run of strong U.S. economic data, most notably relating to the job market.
"With unemployment falling and stocks soaring, we would have expected consumers to be a far less frugal in December and January," said Michael Woolfolk, an analyst at Bank of New York Mellon.
In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 5,884 while Germany's DAX fell the same rate to 6,715. The CAC-40 in France was also 0.4 percent lower at 3,370.
The euro gave up earlier gains and was trading flat at $1.3161.
On Wall Street, the Dow Jones industrial average was down 0.3 percent at 12,838 while the broader Standard & Poor's 500 index fell 0.4 percent to 1,346.
Earlier, markets had brushed off Moody's widespread action. As well as blaming the increasingly weak economic outlook in Europe, the agency cautioned over the uncertainty over the reform process in the 17-nation eurozone.
"Not quite the St. Valentine's Day Massacre, more of a drive-by shooting," said Gary Jenkins, managing director at Swordfish Research.
Analysts said that the impact was fairly negligible given that Moody's was just echoing decisions made last month by its rivals Standard & Poor's and Fitch _ the borrowing rates of those countries affected by Moody's pronouncements were trading within normal ranges.
Government debt ratings can play a major role in countries' borrowing costs because a lower rating often means countries pay higher interest rates on their bonds to attract investors _ it's not always the case though; the United States has actually seen its borrowing rates fall since Standard & Poor's stripped it of its triple A rating last August.
The reaction in stock markets was muted to say the least. Stocks were actually trading higher as investors remained confident that Greece would get its second bailout despite signs that the eurozone countries, led by Germany, aren't quite ready to back the release of funds to the cash-strapped euro country.
"They are trying to take a hard line but if they do not continue to lend to Greece then all the money lent/invested so far gets written off, which would be a PR disaster, let alone what would happen in Greece," said Swordfish's Jenkins.
The markets will continue to focus on developments on Greece and in particular Wednesday's meeting of euro finance ministers in Brussels, where an agreement in principle to give Greece the money is at least expected.
On Sunday, Greece's parliament approved sharp cuts in civil service jobs, welfare and the minimum wage, required by international leaders for a euro130 billion ($171 billion) bailout that the country needs to avoid defaulting on its debt next month.
Earlier in Asia, Japan's Nikkei 225 index rose 0.6 percent to 9,052.07, its highest close since Sept. 1. The gains came as the Bank of Japan, following a policy meeting, announced it would buy more government bonds while keeping short-term interest rates near zero to boost the economy.
The U.S. dollar rose to a three-week high against the yen after the central bank's announcement, helping Japan's exporters, whose earnings have been trampled by a strong home currency. Toyota Motor Corp. jumped by 1.8 percent and Suzuki Motor Corp. was 1.5 percent higher. Canon Inc. gained 1.5 percent.
Elsewhere, Hong Kong's Hang Seng rose 0.2 percent to 20,917.83 and South Korea's Kospi was 0.2 percent lower at 2,002.64. Australia's S&P/ASX 200 lost 1 percent to 4,242.80.
Mainland Chinese shares edged lower with the benchmark Shanghai Composite Index down 0.3 percent at 2,351.86. The Shenzhen Composite Index was virtually unchanged at 912.31.
Oil prices pushed further above the $100 a barrel mark _benchmark oil for March delivery was up 64 cents at $101.56 per barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.