World stocks, the euro and commodities fell on Thursday on concerns over a potential downgrade of Greece's debt, while borrowing costs for peripheral euro zone countries rose.
Safe-haven government bonds firmed.
Credit agency Standard & Poor's said on Wednesday it may downgrade Greece's BBB-plus rating by one or two notches within a month, citing downside risks to growth that could hinder the country's deficit-cutting plan.
Moody's Investors Service said Athens would need to enact its fiscal reform plans as promised if it was to avoid a downgrade and Fitch Ratings said that, barring surprises, it expected to keep its BBB-plus rating unchanged for the next few months.
The comments overshadowed U.S. Federal Reserve Chairman Ben Bernanke's pledge on Wednesday to keep interest rates low for a long time.
The euro hit a one-year low against the yen and lost 0.4 percent against the dollar at $1.3485.
The low-yielding yen was the main beneficiary in Asian trade as risk aversion fuelled a rally into the Japanese unit, forcing it to a one-year high against the euro.
"The yen is in favour after sentiment deteriorated over Greece Wednesday. It does tend to strengthen when times get tough and I would also say the yen is likely to remain in favour going into the Japanese fiscal year-end," said HSBC director of currency strategy Paul Mackel.
The U.S. dollar was also firmer against a basket of major currencies.
Adding to the downbeat mood in Europe, euro zone economic sentiment eased marginally in February against January, defying market expectations of a small rise and adding to concerns about the sustainability of an economic recovery.
PREMIUM UP
Borrowing costs for peripheral euro zone countries rose on concerns over Greece, with the 10-year Greek/German bond yield spread widening to 365 basis points (bps) from 342 bps on Wednesday.
The equivalent Spanish spread moved out by five bps to 81 bps as concerns grew that the country might become the next in the euro zone to struggle under the weight of a large budget deficit.
The cost of insuring Greek debt default also rose, with the country's five-year credit default swaps up 12.7 bps, taking the cost of insuring 10 million euros of Greek debt exposure against default to 394,600 euros, up from 381,900 euros.
"There's renewed focus again on sovereign risk and it's hurting the sovereign European countries," said Niels From, chief analyst at Nordea in Copenhagen. "It remains a huge theme driving the market."
Yields on other 'safe-haven' bonds eased. The 10-year benchmark Bund eased 1 basis point to 3.125 percent, while 10-year U.S. Treasuries were down 3 bps to 3.666 percent.
World stocks measured in the MSCI All-Country World Index fell 0.5 percent and Greece's share benchmark was down 2.1 percent.
U.S. stock index futures fell 0.1 to 0.5 percent, pointing to a weaker start for Wall Street.
The pan-European FTSEurofirst 300 drifted 0.2 percent lower, though gains in banks led by Royal Bank of Scotland and Credit Agricole limited losses.
RBS soared 6.3 percent and Credit Agricole rose 3.7 percent after results while European banks added 0.3 percent.
In Asia, Japan's Nikkei average closed down 1 percent as the yen rose broadly. Commodity prices also fell, with crude down 0.7 percent to trade below $80 a barrel and copper down 1.1 percent.
