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NEW YORK U.S. and European stocks fell on Friday and the euro hit record lows after Spain's heavily indebted Valencia region asked for financial aid, increasing investor fears that the Spanish government will seek a full-blown bailout.
Valencia sought help under an 18 billion euro ($22.1 billion) program passed on Thursday that aims to bolster regional finances.
Spain's IBEX stock index .IBEX fell 5.8 percent, its biggest one-day drop in two years, and the risk premium on government debt hit a euro-era high as its borrowing costs rose to 7.32 percent. That is above the 7 percent threshold considered unsustainable, with little relief in sight.
"There is very little to stop Spanish bond (yields) moving up at the moment, and that is a big concern," said Ed Shing, head of European equity strategy at Barclays.
Martin Briggs, risk advisory consultant for global payments company AFEX Markets Plc in London, called the euro "a slow motion train crash that's happening in front of our eyes. No one seems to have the will or the ability to make the tough decisions that need to take place."
The euro plumbed record lows against the Australian, Canadian and New Zealand currencies and hit multi-month lows against the Norwegian and Swedish crowns. Against the yen, it hit the lowest level in more than 11 years.
The euro fell as low as $1.2143, its weakest level against the dollar since mid-June 2010. It last traded at $1.2160, down 1.0 percent, as a sell-off against sterling and the Swedish crown exacerbated the euro's slide.
U.S. stocks snapped a three-day winning streak while stocks in Europe extended losses after the European Central Bank said it would stop accepting Greek bonds as collateral, adding to concerns about the euro zone debt crisis.
The FTSEurofirst 300 .FTEU3 closed down 1.5 percent at 1,048.98.
Banks .SX7P and insurers .SXIP, which stand to lose on their sovereign bond holdings and loan books if the euro zone crisis intensifies, were among the top decliners in Europe. Banks fell 3.7 percent and insurers slipped 1.9 percent.
Spain's plight overshadowed another round of strong U.S. corporate earnings, including better-than-expected profits at General Electric (GE.N) and strong advertising revenue at Google (GOOG.O).
"The news from Europe continues to be a smoldering mess, and it will be a long convoluted process before things are resolved there," said John Kattar, who helps oversee $1.7 billion in assets as chief investment officer at Eastern Investment Advisors in Boston.
The Dow Jones industrial average .DJI ended down 120.79 points, or 0.93 percent, at 12,822.57. The S&P 500 Index .SPX closed down 13.85 points, or 1.01 percent, at 1,362.66. The Nasdaq Composite Index .IXIC finished down 40.60 points, or 1.37 percent, at 2,925.30.
German bond prices and U.S. Treasuries rose as investors clamored for safe-haven assets.
German 10-year bond yields fell 5 basis points to 1.168 percent, and the benchmark 10-year U.S. Treasury note was up 15/32 in price to yield 1.4584 percent.
The U.S. dollar index .DXY rose 0.7 percent to 83.476.
Oil fell below $106 per barrel at one point as a firmer dollar spurred a dip from an eight-week high hit in the previous session due to supply worries linked to tension in the Middle East and hopes of an economic stimulus in the United States.
Brent crude fell 97 cents to settle at $106.83 a barrel, but still posted a 4.33 percent weekly gain and has risen about 16.5 percent over the past four weeks.
The expiring August contract for U.S. crude fell $1.22 to settle at $91.44 a barrel. U.S. September crude fell $1.14 to settle at $91.83 a barrel, but rose 4.98 percent for the week.
A rally in soft commodities, which has pushed corn and soybean prices to record highs, showed no signs of abating.
The Reuters/Jefferies CRB Index .CRB of 19 commodities was down 0.40 point, or 0.13 percent, at 304.57.
(Additional reporting by Mike Peacock in London, editing by Dan Grebler)