The Dow Jones Industrial Average briefly moved into positive grounds today following a bigger-than-expected increase in US consumer confidence and regional manufacturing activity.

The index later resumed its downward ascent on fear that Germany's request for new austerity measures from Greece would delay aid and exacerbate debt burdens across peripheral European countries. Caution ahead of an important vote on US banking sector reforms also weighed on risk appetite so far today.

By around 3.50pm (London time) the Dow Jones was trading at 11182.66, representing a 22.37-point (-0.20%) decline from its previous close. In addition, the broader S&P 500 was 3.41 points (-0.28%) lower at 1208.64, while the Nasdaq 100 was 5.19 points (-0.25%) below its previous close at 2043.90.

Equity markets suffered today after Germany's Angela Merkel adamantly warned that she won't release funds for Greece until the indebted Mediterranean economy produces a 'sustainable' programme to reduce its deficit. Merkel's demand left investors fearing that Greece will not be able to activate the EU rescue aid in time to avoid a default.

Proposals to force investors to take a discount on Greek debt also shook the market today, especially banks, as it suggests that holders of Greek debt will be punished. Norbert Barthle, a spokesman for Angela Merkel's party, said banks holding Greek government debt should contribute to a rescue of Greece because they had profited from the crisis in recent months and 'had speculated against Greece in part...that would mean whoever bought Greek bonds wouldn't get 100% of their value but say only 80, 90 or 70% - it depends,' Barthle said, adding it was too early to say how much of a discount on the debt should be sought.  Mr Barthle said the Christian Democrats will raise this proposal with the IMF and European Central Bank on Wednesday.

Also worrying is the fact that Portugal has begun to suffer as a result of Greece's woes. The risk premium on Portuguese bonds rose to more than double the past year's average this month, Bloomberg News has reported, suggesting that it is becoming more expensive for the country to service its own debt. As you can imagine, these developments have raised the spectre of a widespread contagion occurring. Meanwhile, S&P today cut Greece's credit rating to BB+ and Portugal's rating was lowered by two notches to A- with a negative outlook.

The move 'reflects our view of the amplified fiscal risks Portugal faces,' S&P said in the statement. 'We expect the Portuguese government could struggle to stabilise its relatively high debt ratio over the outlook horizon until 2013.'

Unsurprisingly, US banks continued to slide this afternoon, with Citigroup falling 2.4% to $4.50 a share, Bank of America down 1.1% to $17.85 and Wells Fargo 1% lower at $32.37. Insurer American International Group was also among the casualties, plunging 9.6% to $40.22 after Keefe, Bruyette & Woods downgraded the company's stock from 'market perform' to 'underperform'.

Elsewhere, US reports released this afternoon continued to show signs of life returning to the American economy. The Conference Board's consumer confidence index rose more than forecast to 57.9 in April from 52.3 the prior month, suggesting that we could see an improvement in future spending trends. Meanwhile a separate report showed the Richmond Fed manufacturing index climbing to a reading of 30 from 6 in March. The latest figure was substantially better than expectations of a rise to 10 and suggests that manufacturing activity has continued to climb.

The US housing data was a bit of a disappointment, however. The S&P/Case-Shiller home price index rose less than forecast in February, signalling that the recovery in US house prices has begun to lose steam.

The index that tracks the prices of homes in 20 US cities increased 0.6% on the year in February. This trails expectations of a 1.3% year-on-year gain and follows a 0.7% rise in January. On a seasonally adjusted basis, the gauge fell 0.1% from the prior month and follows a 0.3% gain in January. 'These data point to a risk that home prices could decline further before experiencing any sustained gains,' warned David Blitzer, chairman of the index committee at S&P. 'It is too early to say that the housing market is recovering.