The euro plunged for a sixth-straight session to $1.3260 after the Moody's news, its lowest level since May 2009, according to Reuters data. It was last at $1.3294, down 0.7 percent on the day. Against the pound, the euro fell as low as 86.32 pence, its weakest since late January.

The cost of insuring Greek government debt against default hit a record high above 600 basis points. Five-year credit default swaps on Greek government debt rose to 616 basis points, making it the most expensive sovereign debt in Europe to insure against default, according to CMA DataVision.

In mid-day trading, the Dow Jones Industrial Average was down 78.97 points, or 0.71 percent, at 11,045.95, while the Standard & Poor's 500 Index was down 9.67 points, or 0.80 percent, at 1,196.27. The Nasdaq Composite Index was down 17.98 points, or 0.72 percent, at 2,486.63.

The pan-European FTSEurofirst 300 index of top shares closed down 1.1 percent at 1,083.88 points, having earlier been up as much as 1,102.69 points.

European banks extended their slide from the previous session. Greek banks slipped 5.4 percent.

MSCI's all-country world equity index was down more than 1 percent.

Greece has been struggling to persuade markets it can slash its budget deficit and avoid default. It needs to raise 10 billion euros next month with an 8.5 billion euro bond falling due on May 19.

"There seems little hope of a significant fall in yields before the markets see cash in Greek hands. The only way Greece stands a chance of refinancing the 8 billion euros or so of debt that matures in mid-May without paying an exorbitant interest rate will be to put the bailout package in motion as soon as possible," said Ben May, European economist at Capital Economics, in a note to clients.

Adding to the sour sentiment in equities, technology shares tumbled on disappointing forecasts at Nokia, eBay Inc. and Qualcomm Inc.

Nokia cut its profit outlook for its key phone unit. Its US-listed shares tumbled roughly 14 percent to $12.93.

Chip maker Qualcomm late on Wednesday gave a weak forecast for the current quarter and full year, sending its stock down nearly 8 percent on Thursday.

Shares of eBay also dropped about 8 percent after its forecast for the rest of the year fell short of Wall Street expectations.

US Treasury debt prices rose on the worries over Greece, despite stronger US economic data.

The benchmark 10-year US Treasury note was up 3/32, to yield 3.73 percent, while the two-year US Treasury note was up 1/32, yielding 0.98 percent. The 30-year US Treasury bond was up 5/32, with the yield at 4.61 percent.

In currencies, the dollar was up against a basket of major trading-partner currencies, with the US Dollar Index up 0.56 percent at 81.612 from a previous session close of 81.161.

Against the Japanese yen, the dollar was down 0.03 percent at 93.10 from a previous session close of 93.130.