European stocks dropped 1 percent and the euro turned lower on the day against the dollar on Thursday morning after benchmark 10-year Spanish government bond yields rose to hit 7 percent, a level deemed too expensive for a sovereign to continue borrowing cash over the long term. .EU

Moody's slashed its rating on Spanish government debt by three notches to 'Baa3' from 'A3', saying the newly-approved euro zone plan to help Spain's banks will increase the country's debt burden.

Italy was also in the spotlight as the country's borrowing costs jumped at a bond auction on Thursday. IT-D

On the macro front, investors awaited the monthly U.S. Consumer Price Index, due at 1230 GMT, as well as first-time claims for jobless benefits for the week ended June 9, at the same time.

Tech shares will be in the spotlight after loss-making Finnish cellphone maker Nokia (NOK1V.HE) said it plans to cut another 10,000 jobs globally in its biggest revamp in recent history, while it warned the second-quarter loss from its cellphone business would be larger than expected.

Stockton, California, faces a growing likelihood of defaulting on some of its debt obligations as the conclusion of confidential talks with its creditors aimed at averting bankruptcy nears, Moody's Investors Service said in a statement on Wednesday.

Wall Street ended lower on Wednesday as fears ahead of the weekend elections in Greece finally drove down a market that had been treading water through most of the day.

The Dow Jones industrial average .DJI fell 77.42 points, or 0.62 percent, at 12,496.38. The Standard & Poor's 500 Index .SPX lost 9.30 points, or 0.70 percent, at 1,314.88. The Nasdaq Composite Index .IXIC dropped 24.46 points, or 0.86 percent, at 2,818.61.

(Reporting by Blaise Robinson; Editing by Adrian Croft)

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