European shares turned down and the dollar slipped from a three-year high on Wednesday after weak data from China and a rating downgrade of Italy deepened caution pending the Federal Reserve's latest minutes.
Europe's broad FTSEurofirst 300 buckled after a positive start to be down 0.3 percent by mid-morning, as data showing China's exports fell for the first time in 17 months was followed by soft manufacturing figures from France, the Netherlands and Greece.
After a five-day run of gains for world shares investors were booking profits and squaring off positions before the minutes from the Fed's June meeting are released at 1800 GMT, after the European market close.
Peter de Bruin, a senior economist at ABN Amro, said he expected to see a consensus forming among Fed policymakers to start scaling back its $85 billion-a-month stimulus programme in September following the recent pick-up in U.S. data.
"I think we have already seen the main fireworks from the Fed's intentions to taper so I would be surprised if we saw another strong rise in yields," he added.
Expectations that the Fed will begin scaling back its bond-buying have sparked a near 5 percent rally in the dollar and a 50-basis point or so rise in the benchmark 10-year U.S. bond yield since mid-June.
The dollar was down against the yen and a basket of currencies by 1025 GMT as currency traders locked in profits, while U.S. stock futures pointed to a subdued start for Wall Street .
The softer dollar also allowed the euro to climb off the previous session's 3-1/2 month low, though it remained under pressure from recent European Central Bank talk of policy easing options.
In Asia, Chinese shares had risen sharply in late trade after the weak export data had triggered talk among traders that the central bank might ease policy to boost growth again.
China's slowing economy is troubling for Europe where economies are already struggling to recover from the banking and debt crises.
With German firms selling increasing amounts to China, Deutsche Bank economist Gilles Moec said the euro zone's biggest economy and economic engine would feel its slowdown the most.
"German exporters are disproportionately affected, because they tend to focus on sectors which are specifically struggling in China at the moment," Moec said.
In debt markets, Italian government bonds saw a muted 7 basis points rise in yields and Spanish, Greek and Portuguese yields also edged up after Standard & Poor's downgraded Italy to BBB, on concerns over its economy.
The yield premium demanded by investors to buy 10-year Italian paper over German debt of the same maturity rose to about 280 bps - some 30 bps more than this year's low, hit in May, but still 25 bps less than June's highs.
"The downgrade is a signal we are not ready to outperform for an enduring period in the periphery," BNP Paribas rate strategist Patrick Jacq said.
With many investors waiting for the Fed minutes, gold rebounded from light falls to trade near a one-week high and growth-attuned copper turned positive after initially falling on the China data.
Oil prices on both sides of the Atlantic also rose, with the U.S. benchmark climbing to a 14-month high near $105 a barrel, buoyed by a sharp decline in fuel stockpiles in top oil consumer the United States.
"The market is too high from a fundamentals point of view," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin. "It is riding on the back of expectations of a revival in U.S. demand."