NEW YORK—Investors sold risky assets, including emerging-market debt and stocks, as fears over the fiscal health of euro-zone countries increased the appeal of safer haven German and U.S. government bonds.

Standard & Poor's Corp. sparked the selloff by cutting Greece's debt rating to "junk" territory and lowering Portugal's debt ranking two notches. With other concerns, such as the looming overhaul of U.S. financial regulation and Wednesday's interest-rate decision from the Federal Reserve, adding to the uncertainty, investors fled risky investments.

The extra yield that investors charge on traditionally riskier emerging-market debt grew by the widest margin since October 2009, while U.S. stocks tumbled, sending the Standard & Poor's 500 index back below 1200 and the Dow Jones Industrial Average below 11000.

The euro fell more than 1.5% against the dollar and more than 2% against the yen. The dollar dipped below 93 yen as the Japanese currency gained strongly.

Other currencies closely tied investor appetite for risk dropped sharply, with the Canadian dollar losing more than 1.6% against the U.S. dollar, and the Australian dollar slipping more than 1%. Latin American currencies like the Brazilian real and the Mexican peso, too, suffered.