|Negative headlines out of Europe forced the markets to concede gains before the clsoe of 'Black Friday' [Reuters]
US stocks have led global equity markets to their worst week in two months, falling for a seventh straight session on fear that Europe's debt crisis is dragging on without a credible solution.
Stocks traded higher for most of an abbreviated session on hopes that "Black Friday", the traditional start of the US holiday shopping season, would support major retailers.
But negative headlines out of Europe forced the market to concede gains just before the close on Friday.
Fewer participants in US markets after Thursday's Thanksgiving holiday also made it difficult to counter the move lower.
Stocks in Europe and other major exchanges also suffered their worst week in two months, although European shares ended the day up following Wall Street's initial bounce.
After a shortened session, the Dow Jones industrial average finished down 25.77 points, or 0.23 per cent, at 11,231.78.
The Standard & Poor's 500 Index was down 3.12 points, or 0.27 per cent, at 1,158.67. The Nasdaq Composite Index lost 18.57 points, or 0.75 per cent, at 2,441.51.
Reports that Greece was demanding harsh conditions from creditors on a proposed bond swap, which is critical to reduce its debt and save the euro, intensified investors’ worries.
Banks represented by the Institute of International Finance agreed last month to write off the notional value of their Greek bondholdings by 50 per cent to reduce Greece's debt ratio to 120 per cent of its gross domestic product by 2020.
But Greece was demanding that its new bonds' net present value - a measure of the current worth of future cash flows - be cut to 25 per cent, a far harsher measure than a number in the high 40s that banks had in mind, according to people briefed on the matter.
Belgium also made it to investors' watch-list after Standard & Poors downgraded the country's credit rating to AA from AA-plus, citing concerns about funding and market pressures.
A European Union conference in Strasbourg produced little to soothe the markets' fears. French President Nicolas Sarkozy and German Chancellor Angela Merkel, after talks with Italian Prime Minister Mario Monti on Thursday, agreed only to stop bickering in public over whether the European Central Bank should do more to resolve the crisis.
"The markets are going to continue to pressure the EU until they come up with a solution that is going to ease the crisis," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
European stocks ended higher after falling in six previous sessions. The FTSEurofirst 300 index of top European was up 0.94 per cent on the day but ended the week 4.6 per cent lower.
Italian two-year government bond yields rose above 8 per cent while the interest rate premium investors charge Italy to borrow over 10 years compared with equivalent German debt continued to rise despite reported buying by the European Central Bank.
German Bund futures also extended losses, reinforcing fears that debt contagion is starting to hurt the region's soundest economy.
Bund futures hit a session low of 134.27, continuing to fall after a sharp sell-off in the wake of a weak 10-year bond auction on Wednesday.
World stocks, indicated by the MSCI All-World index were down half a per cent on the day and down 5.3 per cent on the week.