NEW YORK (Reuters) - Global stocks fell and government debt prices rose on Thursday after a Spanish debt auction failed to allay fears that Spain could be the next European country in need of a bailout and as U.S. economic data cast doubt on the strength of the recovery.
The number of Americans claiming unemployment benefits for the first time fell less than expected last week, suggesting a slowdown in job creation. Other data showed factory activity in the Mid-Atlantic region slowed sharply this month and U.S. home resales fell for a second month in March.
Analysts said part of the data's weakness was payback after an abnormally warm U.S. winter. But few doubted the economy was losing some steam, leaving the door open for further monetary stimulus from the Federal Reserve, a bullish sign for bonds.
"The prospects for easing are on the table and are always going to be on the table," said Sean Incremona, economist at 4CAST LTD in New York. "Euro zone worries, U.S. economy worries - it doesn't look like it's going to be a risk-on day."
The benchmark 10-year U.S. Treasury note rose 5/32, the yield at 1.9612 percent.
Closely watched auctions of French and Spanish debt aided safe-haven assets like Treasuries and German bunds.
Equities in both New York and Europe fell on the economic data. Investors in Europe have increasingly been looking to the United States, as well as emerging markets, to drive European corporate profits while the euro zone economy languishes.
The equity declines came amid a strong beginning to the U.S. earnings season, confirmed on Thursday by better-than-expected reports from Bank of America Corp (BAC.N), Morgan Stanley (MS.N) and eBay Inc (EBAY.O).
Of the 105 S&P 500 companies that have reported earnings to date, 81.9 percent have beat analyst expectations, according to the latest Thomson Reuters data.
But shares of Apple (AAPL.O), down 3.4 percent, weighed on the market, as did Priceline.com Inc (PCLN.O).
Demand for safe-haven government debt could ease if a meeting this weekend of the International Monetary Fund supports the idea of buffering the so-called peripheral European economies, said John Hendricks, a portfolio manager at Hartford Investment Management in Hartford, Connecticut.
IMF chief Christine Lagarde said on Thursday she expects to win a big boost in funding to help the lender safeguard countries from the euro zone debt crisis.
"Clearly, the bond market is very focused on headlines out of Europe right now," Hendricks said. "We're in a very volatile rate environment and we bounce from one headline to the next."
The Dow Jones industrial average .DJI ended down 68.65 points, or 0.53 percent, at 12,964.10. The Standard & Poor's 500 Index .SPX lost 8.22 points, or 0.59 percent, at 1,376.92. The Nasdaq Composite Index .IXIC fell 23.89 points, or 0.79 percent, at 3,007.56.
Global stocks as measured by MSCI's all-country world equity index .MIWD00000PUS fell 0.4 percent to 324.97.
The FTSEurofirst 300 .FTEU3 closed down 0.5 percent at 1,040.79. Euro zone debt concerns sent the French CAC .FCHI down 2 percent and the Spanish IBEX .IBEX off 2.2 percent against a broadly flat British FTSE .FTSE.
Spain sold 2.5 billion euros in two- and 10-year bonds, at the top end of the targeted amount. Yields on the key 10-year bond were higher, however, reflecting fears that Spain may miss budget deficit targets, as well as concerns about its banks.
Investors fretted about the higher yields demanded in the auction and about a possible future credit rating downgrade for France, where upcoming presidential elections pose an additional risk.
Italian, Spanish and French bond yield spreads widened over benchmark German Bunds. Bund futures traded 30 ticks higher on the day at 140.66, after hitting a record high of 140.78 earlier.
The euro initially tracked a rise in credit default swaps and a widening of yield spreads between safe-haven German bunds and debt issued by weaker countries like Spain and Italy.
But the euro traded either side of break-even, and was last up 0.1 percent at $1.3120. The dollar rose against a basket of major trading-partner currencies, with the U.S. Dollar Index .DXY gaining 0.1 percent to 79.553.
Brent crude oil futures gave back most early gains, as the U.S. economic data stoked fresh worries on oil demand.
The Brent crude contract for June settled up 3 cents at $118.00 a barrel.
U.S. May crude fell 40 cents to settle at $102.27 a barrel.
Gold eased for most of the day on European debt jitters and worries over the U.S. labor market, but was higher in late afternoon trading.
Spot gold rose 84 cents to $1,638.80 an ounce, while U.S. gold futures for June delivery settled up $1.80 an ounce at $1,641.40.