Meanwhile, investors traded with caution ahead of Friday's release of U.S. growth data in the October-December quarter.

Japan's benchmark Nikkei 225 stock average lost 96.69 points, or 0.9 percent, to 10,381.97 in the morning session. Investors dumped shares in banks, which own large amounts of government bonds.

Mitsubishi UFJ Financial Group, Japan's biggest bank, fell 3 percent to 432 yen ($5.2). Mizuho Financial Group, Japan's No. 2 banking group, declined 3 percent to 159 yen. Sumitomo Mitsui Financial Group was down 2.3 percent at 2,851 yen.

Australia's S&P/ASX 200 was down 0.5 percent at 4,884.10. South Korea's Kospi declined 0.7 percent to 2,099.62.

Standard & Poor's slashed Japan's credit rating for the first time in almost nine years Thursday, issuing a harsh critique of the government's ability to control its ballooning debt.

First-time applications for unemployment rose to 454,000, the highest level since late October. Economists had expected the number to rise to 407,000. Snowstorms in some parts of the country forced companies to lay off workers, economists said.

Caterpillar Inc. rose 0.8 percent after its fourth-quarter profit quadrupled on strong global demand for mining and construction equipment. Time Warner Cable Inc. gained 2 percent after raising its dividend thanks to a 22 percent jump in income last quarter.

AT&T Inc. fell 3 percent, the largest drop in the 30 companies that make up the Dow Jones industrial average. The company reported that new wireless contracts fell to the lowest level in more than five years.

Procter & Gamble Co., the maker of consumer products like Tide detergent, fell 2.9 percent after it failed to meet analyst's expectations.

The Dow Jones industrial average inched up 2 points, or less than 0.1 percent, to 11,987. The index broke through the 12,000 mark yesterday for the first time since June 2008 before slipping in the late afternoon.

House Budget Committee Chairman Paul Ryan, R-Wis., is testing support for his idea to replace Medicare with a fixed payment to buy a private medical plan from a menu of coverage options.

Party leaders will determine if the so-called voucher plan will be part of the budget Republicans put forward in the spring.

"No decisions have been made on the details of our House GOP budget." Michael Steel, a spokesman for Speaker John Boehner, R-Ohio, said Thursday. "There are a lot of ideas out there, and we're going to listen to our members and the American people."

Medicare was one of the most highly charged issues during last year's congressional elections, which put the House back in GOP control. Republicans slammed Democrats for cutting Medicare by about 6 percent over 10 years to finance President Barack Obama's health overhaul.

Bank of America Corp. intends to give some investment bankers a greater share of their bonuses in cash, the latest Wall Street compensation move roiling banking chieftains as they meet in Davos, Switzerland.

Last year the highest-paid bankers at the nation's largest bank by assets received as little as 5% of their payout in cash. Now bankers and traders making more than $5 million are getting as much as 30% of their 2010 compensation in cash and at least 70% in deferred stock, according to people familiar with the situation. Some could see a stock award of as much as 80% and 20% in cash.

Last year's level of cash was unusually low because the bank was restricted by federal pay rules as a condition of the $45 billion it received in U.S. aid.

"We feel that our pay practices are fair and appropriate for our employees and our shareholders," a spokesman said.

Still, multiple bankers gathered at the World Economic Forum in Davos grumbled that Bank of America would increase the cash portion of bonuses—news that traveled fast once the bank's employees were told.

The Statesman Journal reports the complaints filed Wednesday in Multnomah County Circuit Court in Portland accuse Countrywide of making false statements that inflated the prices of Countrywide's stock and bonds.

The state bought and sold shares of Countrywide stock and bonds from 2004 to March 2008. State officials said Countrywide claimed to deal in prime quality mortgage loans different from riskier loans by competitors when it was actually writing a higher volume of riskier loans.

Oregon opted out of a class-action settlement with Countrywide, which could have netted the state less than $500,000.