* Wall St pares gains after reports of Korea ship sinking
* Euro climbs on news of accord on Greece safety net
* Oil sheds gains as U.S. GDP data dents bullish mood (Updates with close of European markets)
By Herbert Lash and Jennifer Ablan
NEW YORK, March 26 (Reuters) - Global stocks slipped and government debt prices edged higher on Friday as worries about the sinking of a South Korean naval ship dashed optimism over a standby financial aid accord for debt-stricken Greece.
Seoul played down reports that one of its navy ships with more than 100 people on board may have been hit by an alleged North Korean torpedo attack. For details see: [ID:nnSGE62P0GW]
Market sentiment turned quickly on news of the unconfirmed attack, with global stocks paring gains to turn negative and the CBOE's volatility index <.VIX>, often referred to as Wall Street's fear gauge, turning positive after being down about 4 percent.
"We've been seeing a lot of concern today specifically on the situation over in the Koreas. That's got people's attention right now," said Dave Lutz of Stifel Nicolaus in Baltimore.
"Aside from that we're seeing very low volume. It kind of feels like a buyers' strike," he said.
The ship's sinking curbed enthusiasm about a deal unveiled late Thursday under which Greece would receive both bilateral loans from its euro zone partners and International Monetary Fund funding if Athens faced severe difficulties. [ID:nLDE62N2R1]
Shortly after 1 p.m., the Dow Jones industrial average <.DJI> was up 1.44 points, or 0.01 percent, at 10,842.65. The Standard & Poor's 500 Index <.SPX> was down 1.39 points, or 0.12 percent, at 1,164.34. The Nasdaq Composite Index <.IXIC> was down 7.74 points, or 0.32 percent, at 2,389.67.
European shares closed lower, with drug makers giving up some recent gains and energy companies lower on weaker crude oil prices, after data showed that the U.S. economy grew late last year at a slightly less brisk pace than the government had previously estimated.
Gross domestic product expanded at a 5.6 percent annual rate, the U.S. Commerce Department said in its final report for the fourth quarter, instead of the 5.9 percent pace earlier reported. [ID:nN26185940]
U.S. Treasuries slid, keeping benchmark yields near nine-month highs, as the market remained under pressure in the wake of poorly-bid debt auctions this week. Prices edged higher after news of the South Korean ship sinking. [ID:nN26135476]
The benchmark 10-year U.S. Treasury note
The euro rose broadly after euro-zone leaders agreed on the safety net for Greece, although uncertainties remained over the country's long-term fiscal soundness. [ID:nN26141303]
The euro
The plan did not alleviate longer-term worries about Greece and other fiscally vulnerable economies in the region, such as Portugal and Spain, limiting the euro's gains.
The package "reduces some of the biggest risks on Greece and we are obviously seeing the euro respond to that," said Daniel Katzive, a director for global foreign exchange at Credit Suisse in New York.
"But ultimately, the markets remain apprehensive over their fiscal situation and it will be hard for the euro to gain real traction against the dollar in the short term," he said.
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For a graphic on the euro zone crisis see http://graphics.thomsonreuters.com/0210/EUROZONE_REPORT.html
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The dollar was down against a basket of major currencies, with the U.S. Dollar Index <.DXY> down 0.49 percent at 81.72.
Against the yen, the dollar
Yields of Greek government bonds fell and outperformed benchmark German Bunds after the Greece accord, but the country's large, upcoming refinancing needs tempered enthusiasm. [ID:nLDE62P1UD]
"The imminent risk of default has been lowered as a result of the support plan," said Charles Diebel, strategist at Nomura. However, the aid was not a quick fix for Greece's fiscal problems, and had "only put a band-aid on it."
Oil lost all its gains to trade under $80 a barrel after the data on the U.S. economy's growth rate in the fourth quarter of 2009 and the aid plan for Greece failed to quell concerns of a still fragile recovery. [ID:nSGE62P08C]
U.S. light sweet crude oil
Spot gold prices
Asian share markets advanced (Reporting by Vivianne Rodrigues, Ellen Freilich and Burton Frierson in New York; Jo Winterbottom in London; writing by Herbert Lash; Editing by Leslie Adler)