European stocks and the euro retreated on Thursday after Moody's downgraded Spain, reigniting worries over the euro zone debt crisis, while ongoing violence in Libya kept Brent crude hovering around $116.
Investors were also fretting about surprisingly weak Chinese trade data that hit Asian stocks and copper prices.
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China swung to a surprise trade deficit in February of $7.3 billion -- its largest in seven years -- as the Lunar New Year holiday dealt a sharper blow to export activity than had been expected.
"China's trade figures have been a shocker, setting the tone in Asia's trading session. Add to that Spain's credit downgrade and oil prices that aren't retreating, and the glass is now half empty," said Lionel Jardin, head of institutional sales at Global Equities in Paris.
"For U.S. stocks, this has been just a pause in the two-year bull market so far, but the technical picture is much more fragile for European stocks because of the health of the euro zone. Same story for the euro currency: We switched to "sell" on the euro yesterday, and we wouldn't be surprised to see a retreat toward $1.35."
Moody's downgraded Spain to Aa2 from Aa1 with a negative outlook and warned of further cuts, saying the country's plans to clean up the battered banking sector will cost more than the government expects and add to its debt burden.
The single currency dropped half a cent to a one-week low of $1.3804, triggering stop-losses on the break of $1.3850.
The yield gap between 10-year Spanish yields and equivalent German Bunds was nine basis points wider on the day at 232 bps.
The FTSEurofirst 300 index of top European shares was down 0.7 percent, hitting a six-week low, while Spain's benchmark index IBEX 35 was down 1.1 percent at a near two-month low.
World stocks as measured by the MSCI world equity index
were down 0.7 percent.
U.S. stock index futures were also in the red, suggesting a weak start for Wall Street.
Brent crude hovered around $116 a barrel as forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting longer-term damage on the country's exporting capacity and keeping investors on edge.
"The recent geopolitical events that have boosted oil prices are nothing to reassure retail investors, who have been shunning equities," said Philippe Marchessaux, CEO of BNP Paribas Investment Partners, which has 546 billion euros ($754 billion) under management.
"But in the same time, when you look at corporate results and equity valuations, stocks are tremendously cheap."