Oil briefly traded at its lowest in 18 months and European stocks fell on Friday, while the safe-haven dollar rose as weak German and U.S. data and a downgrade to some of the world's major banks unnerved investors.
European stocks dropped nearly 1 per cent after data showing German business sentiment fell for a second straight month in June to its lowest level in over two years, according to the Ifo think tank.
The survey added to gloom from data on Thursday showing U.S. factory growth at its slowest in 11 months in June.
Weak Chinese and European numbers this week have helped to pile on the misery, along with a long-expected downgrade to the credit ratings of 15 of the world's biggest banks by ratings agency Moody's on Thursday.
"Investors are worried about a bigger than expected slowdown in the U.S. economy at a time when Europe's debt crisis remains unresolved and China is facing a slowdown," said Koen De Leus, strategist at KBC Securities in Brussels.
Brent crude dipped below $89 a barrel on concern about slowing demand, matching December 2010 lows set in the previous session and heading for its worst weekly loss in about a year. It later trimmed some of the week's losses to trade 19 cents up on the day.
Bund futures rose 12 ticks as leaders of Germany, France, Italy and Spain meet in Rome to try to find common ground before a full EU summit next week.
The European leaders will search for ways to achieve fiscal and banking union in the euro zone and, more urgently, it may also be the occasion for Spain to formally request assistance of up to €100-billion for its struggling banks.
The International Monetary Fund urged the euro zone late on Thursday to channel aid directly to banks rather than via governments and called for the European Central Bank to cut interest rates, saying the future of the euro was at stake.
Spanish and Italian 10-year bond yields rose but are not as high as earlier this week, when Spanish yields climbed above the 7 per cent level considered unsustainable.
Spanish debt got a reprieve this week as Madrid successfully tapped markets with a sale of medium-term debt, although at an increased cost.
The dollar hit its highest in over a week against the euro and a basket of major currencies and a five-week high against the yen, benefiting from safe-haven flows and concern about further easing by the Bank of Japan.