US stocks fell today as concerns over rising yields on euro zone debt outweighed another round of improved US economic data.

Spanish bond yields hit 6.98 per cent, their highest level since 1997, at a 10-year auction, while a French bond auction also saw high yields.

Losses were capped after data showed US claims for jobless benefits hit a seven-month low last week, while permits for future home construction rebounded strongly last month, bolstering views the economy was gaining traction.

"You can focus on the good data here, the corporate data, the economic data saying we are not in a recession. We are probably growing a little bit faster in the fourth quarter than we were in the third quarter, and that is a good sign," said John Canally investment strategist and economist for LPL Financial in Boston.

"But at the end of the day, bond yields in Europe will rule."

The 7 per cent mark is viewed by investors as unsustainable, with both Greece and Portugal forced to seek bailouts after yields hit similar levels.

The Dow Jones industrial average dropped 49.87 points, or 0.42 per cent, at 11,855.72. The Standard & Poor's 500 Index took off 7.00 points, or 0.57 per cent, at 1,229.91. The Nasdaq Composite Index was down 14.57 points, or 0.55 per cent, at 2,625.04.

Investors have recently struggled to weigh the threat of a deepening European crisis against US economic data that has been better than expected.

Spain's 10-year yield hit a euro era high above 6.78 per cent while the premium investors pay to hold the debt over German benchmarks rose to its highest in the euro's history.

A bond auction in Paris reflected growing concerns France is getting dragged deeper into crisis, with the AAA-rated country's borrowing costs over two and four years jumping by around half a percentage point.

"(The Spain sale) underscores what everyone has seen in the last couple of days," said Marc Ostwald, strategist at Monument Securities.

"The euro zone has got to deliver something which is going to calm markets down and at the moment markets feel like they are being given no comfort whatsoever and this is symptomatic of that."

The euro fell as low as $1.3421. The dollar rose 0.4 per cent against a basket of major currencies to 78.34.

"The only way to trade euro is to sell. It is headed lower and our year-end target of $1.30 looks to be tested soon," said Geoff Kendrick, currency analyst at Nomura.

Many now view an expanded role for the European Central bank as key to stopping a breakup of the single currency zone.

France, the region's second largest economy, called for more aggressive ECB bond purchases. But Germany remains firmly opposed to using the central bank as a lender of last resort, saying it is up to individual governments to put their fiscal houses in order.

"Everyone's looking around saying we should be doing something but no one is making any decisions. It can't carry on like this," said Justin Urquhart Stewart, director at Seven Investment Management.

"But how many weeks have we said that for? Germany needs to lead the way in a euro core, and then think about how we handle the periphery."

Reuters