The euro got an extra boost after European Central Bank President Jean-Claude Trichet said the euro-zone economy faces short-term inflationary pressures. The ECB had earlier left interest rates unchanged at 1 percent.

"He sent a mild warning to markets that the ECB's assessment on interest rates could change," said Commerzbank economist Michael Schubert.

"What was more striking was that he emphasized that the ECB raised rates in July 2008, which stresses that the ECB could still raise rates in very uncertain times," Schubert added.

Oil prices cut losses, keeping $100 a barrel within striking distance, but gold could not capitalize on the weaker greenback.

A delegate from a Gulf OPEC member state told Reuters on Thursday OPEC will only hold an emergency meeting if oil climbs above $100 and stays there, although the group's Gulf members could informally add supply if needed.

Grain prices in Chicago trade touched their highest levels in 2-1/2 years on food price inflation and supply concerns.

Wall Street struggled after weak US jobless claims data, trading in a tight range.

European shares closed lower, although Spanish banks provided a pocket of strength following the solid sovereign bond auctions in Spain and Italy on Thursday. These followed a relatively easy sale of Portuguese debt on Wednesday.

Analysts cautioned that the sales represented a very small percentage of supply from those countries this year.

"We remain skeptical overall," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York. "We don't see any strong momentum behind these moves. We think it's just a short-term move and the euro is going to continue to suffer for the remainder of the quarter."

The euro rose 1.77 percent to $1.3368 on the day, but still down 0.08 percent so far this year. Against the Swiss franc, the euro reached a new 1-month high to trade at 1.2860 francs.

The dollar fell 0.31 percent against the Japanese yen to trade at 82.68. Against a basket of currencies, made up of its major trading partners, the US dollar fell 1.20 percent,

US light sweet crude oil fell 4 cents, to $91.82 per barrel, having been as low as $91.12 in early trade. Spot gold prices fell $2.05, or 0.15 percent, to $1,383.90.

A surprisingly large increase in new weekly claims for US jobless benefits soured the mood in the US stock market while food and energy costs lifted December producer prices.

The claims rose to 445,000 from 410,000 in the prior week, the biggest one-week climb in about six months, which countered expectations for a small drop.

US shares traded mostly lower. The Dow Jones industrial average fell 18.36 points, or 0.16 percent, to 11,737.08. The Standard & Poor's 500 Index lost 0.47 point, or 0.04 percent, to 1,285.49. The Nasdaq Composite Index rose 1.93 points, or 0.07 percent, to 2,739.26.

Shares of drugmaker Merck & Co. fell 6.48 percent to $34.74 after it said it would pull a blood clot drug from one study and not give it to some patients in a late-stage trial. Vorapaxar, seen as having large sales potential, was deemed inappropriate for stroke patients.

The FTSEurofirst 300 index of top European shares closed down 0.57 percent at 1,157.34 points after jumping 1.5 percent to a 28-month high in the previous session.

Spain's Banco Santander and BBVA climbed 4.79 percent and 6.32 percent respectively, while Spain's IBEX35 rose 2.67 percent after Madrid sold 3 billion euros of 5-year bonds. Rome sold 6 billion euros of 5- and 15-year debt.

European mining shares were among the top decliners as key base metals prices fell. Copper slipped after two days of strong gains on worries about waning demand in top metals consumer China, which is approaching its new year holidays.

The STOXX Europe 600 Basic Materials index fell 1.84 percent.

Tokyo shares closed at an eight-month high and Shanghai stocks rose, but European bourses weakened in late trade while US shares were mostly lower. In contrast, MSCI's All-Country World index, reached a fresh 28-month high before paring some gains.

In the debt markets, euro-zone interest-rate futures fell while two-year German bond yields rose to their highest levels since December as traders raised bets on a future interest- rate hike after Trichet's hawkish comments on inflation.

The two-year German Schatz yield rose to a 3-1/2-week high of 1.114 percent after Trichet said the bank had not precommitted not to move rates and added that they had hiked rates in July 2008 as the financial crisis got under way.

US benchmark 10-year Treasury prices rose 17/32 of a point in price, pushing the yield down to 3.30 percent.