A summit of European leaders remains scheduled for Wednesday, but the gathering of finance ministers -- known as Ecofin -- was cancelled because details of the meeting had not been finalized, sources told Reuters.
"This comes as a shock because we thought they were nearing an agreement," said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.
Also on Tuesday, Germany said it opposes a phrase in a draft conclusion for the summit that calls for the European Central Bank to continue buying bonds in the secondary market. The ECB has been buying Spanish and Italian bonds for more than two months in order to hold down the countries' borrowing costs and contain the region's debt crisis.
Earlier in the global session, world stocks hit seven-week highs and the euro notched a six-week high against the dollar on signs that euro zone policymakers had neared agreement on bank recapitalization and on how to leverage the region's rescue fund.
Officials said euro zone leaders are unlikely to provide many hard numbers to flesh out their debt crisis response on Wednesday because the size of banks' losses on Greek bonds is still under negotiation and an increase in the firepower of the bailout fund is tough to quantify. See
MSCI's all-country world stock index fell 0.8 percent, after having earlier hit its highest level since early September.
U.S. stocks fell sharply, with weak corporate results, including from diversified manufacturer 3M Co and movie rental company Netflix Inc, adding to the cautious tone.
The Dow Jones industrial average was down 122.23 points, or 1.03 percent, at 11,791.39. The Standard & Poor's 500 Index was down 15.54 points, or 1.24 percent, at 1,238.65. The Nasdaq Composite Index was down 32.69 points, or 1.21 percent, at 2,666.75.
The FTSEurofirst 300 index of top European shares down 0.9 percent at 790.91 points after rising to an 11-week high of 993.29 earlier in the session.
Emerging market shares gained 0.5 percent. Earlier, Japan's Nikkei closed down 0.9 percent.
The euro fell 0.3 percent to $1.3889, after earlier rising as high as $1.3959 on Reuters data.
The dollar hit a record low versus the yen, raising expectations of official intervention to stem the yen's strength. The dollar hit a fresh low of 75.73 yen, just below the previous low of 75.78 yen reached late last week.
In the oil market, Brent crude fell 97 cents at $110.48 a barrel. U.S. crude rose $2.30 to $93.57 a barrel.
U.S. Treasury bond prices rose. Benchmark 10-year Treasury notes were up 19/32 in price for a yield of 2.16 percent.
"U.S. Treasuries remain the strongest net bought across the board amid investor concerns that the long-standing, seemingly intractable differences amongst euro zone policy makers remain difficult to bridge," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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