After Moody's slashed Ireland's rating by five notches and warned further downgrades could follow, investors curbed their appetite for risk-taking and edged back into US Treasuries and German bunds.

World markets gained little comfort from a European Union summit, at which leaders agreed to create a permanent financial safety net from 2013 but provided no new measures to deal with the immediate crisis.

"Everyone should be troubled with the situation in Europe, and we don't think this the last of the news," said Matt King, chief investment officer at Bell Investment Advisors in Oakland, California, which oversees $400 million in assets.

European banks were under severe selling pressure over Ireland's debt situation.

In midday New York trade, US-listed shares of Allied Irish Bank fell 5.4 percent to $1.22 while Barclays dropped 2.2 percent to $16.23.

The pan-European top shares index, FTSEurofirst 300, closed down 0.46 percent, at 1126.14, dragged by banks, which were down 1.49 percent. As one example, shares of Royal Bank of Scotland were down 5.73 percent.

The Dow Jones Industrial average shed 24.07 points, or 0.21 percent, to 11,475.18, and the Standard & Poor's 500 Index edged down 0.51 points, or 0.04 percent, to 1,242.36. In contrast, the Nasdaq Composite Index saw a boost from technology companies, gaining 8.04 points, or 0.30 percent, to 2,645.35.

Global markets reflected by the MSCI's all-country world stock index dipped 0.17 percent, while the Thomson Reuters global stock index fell 0.28 percent.

The euro sank against the dollar, hitting a two-week low after a drop below $1.32 triggered automatic sell orders.

After a blip of positive news from better-than-expected data on German business morale, the euro slid as low as $1.3138 on trading platform EBS, and was last down 0.63 percent at $1.3153.

Bolstered by the weak euro, the dollar rose against a basket of major currencies by 0.43 percent to 80.523. Against the Japanese yen, the dollar strengthened 0.11 percent to 84.13.

With the dollar on stronger ground, gold and oil prices slipped. In midday trade, crude oil rose 40 cents, or 0.46 percent, to $88.10 per barrel, and spot gold prices climbing 0.15 percent, to $1371.40.