By Herbert Lash
NEW YORK (Reuters) - Global equity markets and the dollar fell on Wednesday as skittish investors sought the safety of less-risky assets like bonds as the possibility of a Greek debt default loomed a little bit larger.
The dollar slid after hitting its highest in more than a week on Tuesday, while yields on U.S. 10-year Treasuries dipped as investors weighed the prospect of higher U.S. interest rates.
But the outlook for the dollar remained upbeat despite Wednesday's drop after another round of mostly positive economic data this week. The data supported the view that U.S. rates were likely to rise sooner than later, most likely in September.
The Commerce Department said gross domestic product fell at a 0.2 percent annual clip in the first quarter, instead of the 0.7 percent pace of contraction it reported last month.
U.S. Treasuries prices earlier rebounded from a two-day selloff after late-stage debt negotiations between Greece and its international creditors hit a roadblock, crimping optimism for a deal and driving demand for safe-haven bonds.
The creditors demanded politically sensitive changes to Greek Prime Minister Alexis Tsipras' tax and reform proposals, adding fresh uncertainty to talks aimed at unlocking aid to avert a debt default next week.
"We are getting to the point where it's do or die, take it or leave it, and I think what you're seeing today is that there's growing fear that this thing is not going to come together," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.
Tsipras spent all afternoon in a meeting with the heads of the European Commission, the International Monetary Fund, the European Central Bank and euro zone finance ministers, but officials said there was no breakthrough.
The price of benchmark 10-year Treasury notes rose 8/32 to yield 2.3798 percent.
The dollar fell against the euro, with the single currency up 0.3 percent at $1.1202. The dollar index was down 0.16 percent at 95.277. Against the yen, the dollar slid 0.07 percent to 123.85 yen.
MSCI's all-country index, a gauge of stock performance in 46 countries, fell 0.43 percent, while the pan-European FTSEurofirst 300 index closed down 0.39 percent to 1,577.18.
The Dow Jones industrial average closed down 178 points, or 0.98 percent, to 17,966.07. The S&P 500 fell 15.62 points, or 0.74 percent, to 2,108.58 and the Nasdaq Composite declined 37.68 points, or 0.73 percent, to 5,122.41.
Crude futures fell about 2 percent after a government report showing an eighth straight weekly drop in U.S. crude stockpiles was offset by a large build in oil products, which have dominated market action lately.
The U.S. Energy Information Administration (EIA) said gasoline stockpiles rose by 680,000 barrels last week, versus a drop of 304,000 barrels forecast by analysts in a Reuters poll.
Brent crude fell 96 cents to settle at $63.49 a barrel, while U.S. crude dropped 74 cents to settle at $60.27 a barrel.
(Reporting by Herbert Lash; Editing by Nick Zieminski and Meredith Mazzilli)