BANGKOK -- World stocks were lower Friday after a credit-rating downgrade was slapped on Japan and U.S. companies that are bellwethers for consumer spending reported disappointing earnings ahead of the release of fourth-quarter economic growth figures.

Oil hovered above $85 a barrel after a batch of disappointing economic indicators. In currencies, the dollar fell against the yen and but gained ground against the euro.

Traders displayed caution ahead of Friday's release of U.S. economic growth figures for the October-December quarter. Economists expect the government to report that the world's biggest economy grew an annualized rate of 3.5% in the fourth quarter -- the strongest since the first quarter of 2010.

If they are right, it would show the economy has consistently gained speed since hitting a rough patch in the spring. Growth slowed sharply at that time as Europe's debt crisis hurt sales of U.S. exports and crimped other business activity.

European shares were down in early trading as Spain announced its unemployment rate rose back above 20% in the fourth quarter to 20.3%, the highest since 1997. That compares to about 19.8% in the third quarter, already the highest among countries using the euro common currency.

Britain's FTSE 100 was 0.7% lower to 5,921.99. France's CAC-40 was down 0.6% 4,036.35 and Germany's DAX shed 0.1% to 7,148.09. Wall Street was headed for a lower opening too, with Dow futures down 0.3% to 11,913 and S&P 500 futures losing 0.4% to 1,291.20.

Japan's benchmark Nikkei 225 stock average dropped 1.1% to close at 10,360.34. Investors dumped shares in banks -- which own large amounts of government bonds -- a day after Standard & Poor's lowered Japan's long-term sovereign debt rating one notch to AA- due to its ballooning public debt.

Mitsubishi UFJ Financial Group ( MTU), Japan's biggest bank, fell 2.7%. Mizuho Financial Group ( MFG), Japan's No. 2 banking group, declined 1.2%.

Australia's S&P/ASX 200 closed down 0.7% at 4,774.90 as the first estimates of the economic cost of east coast flooding -- possibly the most expensive natural disaster in Australia's history -- were released.

South Korea's Kospi declined 0.3% to 2,107.87 and Hong Kong's Hang Seng fell 0.7% to 23,617.02. Shares in Indonesia and Thailand were all lower.

China's Shanghai Composite index gained 0.1% to 2,752.75. Benchmarks in Taiwan and New Zealand were also higher.

Analysts said signs of weakness in some of the world's leading economies were causing investors to think hard about stocks and whether now was a time to jump in, stay put, or head for the exits.

"There is an undercurrent of fear of what is going on in the U.S. There are signs of things turning around, but it's not sure whether current earnings reporting is playing out in line with the recovery story," said Song Seng Wun, an economist at CIMB-GK Research in Singapore.

In addition to uncertainty over the U.S. recovery, Japan also received "a reminder from the credit agency that maybe it's not going the right way either," he said.

The rating given Japan on Thursday -- its first downgrade in almost nine years -- is the same rating given to China, Saudi Arabia and Kuwait. The news sent the dollar as high as 83.18 yen late Thursday from 82.20 yen.

The downgrade is a stern reminder to Japan that it faces consequences for letting its debt swell to twice the size of gross domestic product. The government estimated Japan's public debt would swell to 997.7 trillion yen ($12 trillion) by March 2012, up from 943 trillion yen this year.

On Thursday in the U.S., a surprise jump in applications for unemployment benefits and mixed earnings from large companies held Wall Street stocks to slight gains.

First-time applications for unemployment rose to 454,000 last week, the highest level since late October. Meanwhile, Amazon.com ( AMZN) uncharacteristically missed Wall Street's revenue target. It reported results after the market closed. Both Procter & Gamble ( PG) and rival Colgate-Palmolive ( CL) reported lower profits.

The Dow Jones Industrial Average inched up just 4.39 points to close at 11,989.83. The Dow traded above 12,000 for most of the day but failed to close above that level for the second day in a row. The Dow hasn't closed above 12,000 since June 19, 2008, just as the financial crisis was worsening.

In currencies, the dollar fell to 82.63 yen in Tokyo Friday from 82.88 yen in New York late Thursday. The euro slipped to $1.3695 from $1.3729 late Thursday.

Benchmark crude for March delivery was down 8 cents at $85.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.69 to settle at $85.64 a barrel on Thursday.

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