Earlier, stocks had rallied around the world and the euro hit a session high on Monday, fueled by strong European industrial data that increased optimism about a global economic recovery.
Moody's Investors Service lowered Greece's sovereign debt rating to BA1, which is junk-grade status, from an investment-grade level of A3, citing concerns about risks associated with euro zone's IMF support package.
In response to the downgrade, the three major US stock indexes sharply cut their earlier gains of 1 percent or more.
The Dow Jones Industrial Average was up 56.30 points, or 0.55 percent, at 10,267.37 — off a session high of 10,328.67. The Standard & Poor's 500 Index was up 7.07 points, or 0.65 percent, at 1,098.67 — off a session high of 1,105.91. The Nasdaq Composite Index was up 23.13 points, or 1.03 percent, at 2,266.73 -- off a session high of 2,278.96.
US oil futures prices also retrenched sharply after the Greek downgrade and were last up 90 cents above $74 a barrel. Oil was up about 1 percent, or 71 cents, at $74.49 a barrel — off an earlier jump of 2.5 percent or more. The morning rally in oil followed the European data, which had relieved concerns about a slowdown in global growth.
The euro retreated from a session high just below $1.23, following the Greek debt downgrade, and was last at $1.2238.
Before the news about Greece's debt rating, the catalyst for financial markets was the April reading on European industrial production — its year-over-year increase was the biggest percentage gain in almost two decades. which had reassured investors that the global economic recovery could be picking up steam.
Safe-haven US Treasuries and gold prices also sharply cut the morning's losses after the Greek debt downgrade.
The benchmark 10-year US Treasury note was down 15/32, with the yield at 3.30 percent. That marked a price improvement of several ticks following the Greek debt downgrade.
Spot gold fell $5.70 to $1,224.50 an ounce, following the Greek debt downgrade.
Before the news about Greece from Moody's, the world stocks index was up 1.6 percent while US equities climbed, following strong advances in European and Asian stock markets. The pan-European FTSEurofirst 300 index ended the day at 1,029.59 points, the highest close since May 13.
Japan's Nikkei average ended Monday's session up 1.80 percent at 9,879.85, close to its psychological resistance level of 10,000 and above its 25-day moving average.
