Seoul played down reports that one of its navy ships with more than 100 people on board may have been hit by an alleged North Korean torpedo attack.
Market sentiment turned quickly on news of the unconfirmed attack, with global stocks paring gains to turn negative and the CBOE's volatility index, often referred to as Wall Street's fear gauge, turning positive after being down about 4 percent.
"We've been seeing a lot of concern today specifically on the situation over in the Koreas. That's got people's attention right now," said Dave Lutz of Stifel Nicolaus in Baltimore.
"Aside from that we're seeing very low volume. It kind of feels like a buyers' strike," he said.
The ship's sinking curbed enthusiasm about a deal unveiled late Thursday under which Greece would receive both bilateral loans from its euro zone partners and International Monetary Fund funding if Athens faced severe difficulties.
Shortly after 1 p.m., the Dow Jones Industrial Average was up 1.44 points, or 0.01 percent, at 10,842.65. The Standard & Poor's 500 Index was down 1.39 points, or 0.12 percent, at 1,164.34. The Nasdaq Composite Index was down 7.74 points, or 0.32 percent, at 2,389.67.
European shares closed lower, with drug makers giving up some recent gains and energy companies lower on weaker crude oil prices, after data showed that the US economy grew late last year at a slightly less brisk pace than the government had previously estimated.
US Treasuries slid, keeping benchmark yields near nine-month highs, as the market remained under pressure in the wake of poorly-bid debt auctions this week. Prices edged higher after news of the South Korean ship sinking.
The benchmark 10-year US Treasury note was up 7/32 in price to yield 3.86 percent.
The euro rose broadly after euro-zone leaders agreed on the safety net for Greece, although uncertainties remained over the country's long-term fiscal soundness.
The euro was up 0.86 percent against the dollar at $1.3392.
The plan did not alleviate longer-term worries about Greece and other fiscally vulnerable economies in the region, such as Portugal and Spain, limiting the euro's gains.
The package "reduces some of the biggest risks on Greece and we are obviously seeing the euro respond to that," said Daniel Katzive, a director for global foreign exchange at Credit Suisse in New York.
"But ultimately, the markets remain apprehensive over their fiscal situation and it will be hard for the euro to gain real traction against the dollar in the short term," he said.
The dollar was down against a basket of major currencies, with the US Dollar Index down 0.49 percent at 81.72.
Against the yen, the dollar was down 0.18 percent at 92.51.
Spot gold prices rose $13.45 to $1,104.30 an ounce.
Oil prices fell Friday. The benchmark crude for May delivery fell 85 cents to $79.68 a barrel in early afternoon trading on the New York Mercantile Exchange. It traded as high as $81.46 earlier in the day.
Crude has meandered in the low $80s for about the last two weeks as investors look for signs global oil demand is growing.
In other Nymex trading in April contracts, heating oil fell 0.62 cent to $2.0631 a gallon, and gasoline lost 2.02 cents at $2.1975 a gallon. Natural gas gave up 1.3 cents at $3.968 per 1,000 cubic feet.
In London, Brent crude fell 27 cents to $79.34 on the ICE futures exchange.
