Fears over Greece's political and financial crisis

By Herbert Lash

NEW YORK (Reuters) - U.S. stocks were flat to lower and the euro slid on Wednesday on news that some Greek banks face emergency funding needs, while minutes from an April Federal Reserve meeting showed U.S. economic prospects remain sobering.

The European Central Bank stopped funding operations for some Greek banks as they have not been recapitalized, the ECB said, confirming a Reuters report which had fanned concerns about Greece's financial difficulties.

The Reuters report highlighted the weak state of the banking sector in Greece, where many Greeks are withdrawing money from banks out of fear their country may soon leave the euro zone.

The euro traded near break-even and banks dragged down Europe's top shares to close lower in choppy trade on worries over the stability of the euro zone.

"People are waiting to see what will happen with Europe; the line in the sand for taking some kind of action is getting closer," said Reed Choate, portfolio manager at Neville, Rodie & Shaw in New York.

Choate said efforts by German Chancellor Angela Merkel and new French President Francois Hollande to quell talk of a possible Greek exit from the euro zone were positive, but the reported withdrawal of ECB funding was weighing on markets.

U.S. stocks retreated on the ECB news and minutes of the Fed meeting which showed several members of the U.S. central bank's policy-setting committee had indicated that additional monetary policy accommodation could still be necessary.

The Dow Jones industrial average (DJI:^DJI - News) was up 4.35 points, or 0.03 percent, at 12,636.35. The Standard & Poor's 500 Index (MXP:^GSPC - News) was down 2.45 points, or 0.18 percent, at 1,328.21. The Nasdaq Composite Index (NAS:^COMP) was down 15.08 points, or 0.52 percent, at 2,878.68.

The FTSEurofirst (.FTEU3) index of top European shares closed down 0.5 percent at 992.81.

MSCI's all-country world equity index <.MIWD00000PUS> was down 1 percent to 304.66.

U.S. stocks retreated from gains which had been spurred by data showing that U.S. industrial production posted its fastest growth in over a year in April and a surge in groundbreaking for new homes which suggested a rebound in U.S. housing was gaining some traction.

The twin data points bolstered investor sentiment that has been heavily hit by fears Greece will depart the euro zone.

Prices on longer-dated U.S. government debt turned slightly higher after the release of the Fed minutes.

Benchmark U.S. 10-year Treasury notes last traded up 3/32 in price to yield 1.76 percent.

The euro was down 0.05 percent at $1.2724. The dollar (.DXY) rose 0.2 percent to 81.367, its highest in four months against a basket of currencies.

Oil prices pared losses but remained lower, their decline accentuated by a surprise build in U.S. crude inventories.

Brent crude was down 57 cents at $111.67 a barrel and U.S. oil traded down $1.21 to $92.77 a barrel.

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