Euro zone government borrowing costs slid to new lows on Thursday, a day after the European Central Bank pledged to fulfil its 1 trillion-euro bond-buying programme and as Greece's financial predicament deteriorated sharply.
Global stocks touched a record high thanks to renewed strength in Asian markets. Brent oil fell back from new highs for the year it had reached after figures showed a decline in U.S. production.
But the widening rift between Greece and its creditors over a deal that would unlock funds for Athens and prevent a default hit European stocks. Financials led the reversal in broader indices from Wednesday's recent multi-year highs.
Credit rating agency Standard & Poor's downgraded Greece late on Wednesday, and the country's short-term bond yields soared to 27 percent.
The flip side of this was new lows in German yields. The 10-year Bund yield reached a low of 0.078 percent. Yields on all German government debt out to January 2024 were negative.
Rate strategists at Royal Bank of Scotland on Thursday issued the boldest call on Bunds from any major bank, predicting a fall in the 10-year yield to -0.13 percent.
"The simple continuation of an environment similar to today is likely to push 10-year yields below zero," they said. "There is only a weak sense that inflation risks have been raised by QE so far."
Borrowing costs in peripheral euro zone bond markets like Spain, Italy and Portugal rose, however, as the prospect of Greece and the euro zone reaching agreement appeared to fade.
That also fed into European stocks, encouraging investors to take profit on the previous day's ECB-fuelled rally to historic highs.
The EuroFirst300 index of Europe's leading 300 shares was down 0.75 percent at 1,637 points. Germany's DAX was 1.6 percent lower at 12,034 points, France's CAC40 was down 0.7 percent and Britain's FTSE100 down a half of one percent.
Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan touched a seven-year high and closed up 1.1 percent. South Korean, Australian, Chinese and Malaysian stocks gained, pushing the MSCI global index to a new high of 438.99 points.
Japan's Nikkei lost 0.1 percent, and U.S. futures pointed to a fall of almost 0.5 percent at the open on Wall Street after shares posted sizable gains on Wednesday on several strong corporate earnings results.
Lacklustre economic indicators have been mostly kind to risk assets this week. Wednesday's weak Chinese data further boosted expectations of monetary stimulus by Beijing and soft U.S. data have helped by dampening prospects of an early rate increase by the Federal Reserve.
In currencies, the biggest mover on Thursday was the Aussie, lifted to a three-week high as stronger-than-expected Australian employment numbers reduced the odds of an interest rate cut in the next few months.
The Australian dollar was last up 1.4 percent at $0.7745 .
The euro was on a rollercoaster ride, last 0.5 percent higher at $1.0735, rebounding more than a cent from an earlier low of $1.0626.
ECB President Mario Draghi on Wednesday committed to seeing the central bank fulfil its bond-buying programme, quashing speculation in some quarters that the programme's success could lead to an early "taper".
"From the perspective of the euro we have one clear conclusion: the message from Draghi is that nothing has changed and that we are only at the very start of the QE easing that is coming," said Derek Halpenny, senior currency strategist at BTMU in London.
The U.S. dollar, which neared 121 yen at the start of the week, was little changed at 119.10 yen after slipping to 118.79 overnight.
The market will look to U.S. housing data later for further dollar incentives.
A surge in crude oil also supported commodity currencies such as the Canadian dollar. Crude rallied overnight after government data showed oil inventories in the United States rose less than expected last week.
Brent crude rose as much as 5 percent overnight to a high of $63.10 a barrel, its highest since December last year. It was last trading at $62.50.
U.S. crude was at $55.60 a barrel after jumping nearly 6 percent on Wednesday.