World stocks fell and the euro briefly touched a two-week low on Monday after fresh economic data raised expectations of a recession in Europe, and China signalled it would accept a slower growth rate.
Nervousness over whether Greece will complete a bond exchange with private creditors by March 8, to secure its 130-billion-euro bailout deal and avoid a messy debt default, also undermined demand for riskier assets.
But it was a downward revision to euro zone surveys of purchasing managers' assessments of February which did much to wipe out the positive effects of last week's European Central Bank injection of three-year funding (LTRO) into the banks.
"The macro fundamentals ex-Germany do not look good with the sugar rush from the LTRO fading fast and peripheral debt coming under pressure again," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
The FTSEurofirst 300 index of top European shares was down 0.9 percent at 1,077.86 points, although it is still up about 7.7 percent this year after hitting a seven-month high late last month.
The euro dippped 0.25 percent at $1.3168 on the PMI news, before recovering slightly to trade around $1.3200.
"Persistent weakness in countries such as Italy and Spain will ... subdue any growth in other euro area countries, which traditionally depend on trade within the region, constraining recoveries in Germany, France and other northern euro nations," said Chris Williamson, chief economist at survey compiler Markit.
Shares had begun to weaken in Asia after China's Premier Wen Jiabao, speaking at the country's annual parliamentary session, cut the nation's growth target to 7.5 percent for 2012 to give the giant economy room to slow down.
The MSCI world equity index was down 0.5 percent at 330.3 with Chinese and Japanese share markets leading the falls, anticipating a slowdown in the world's second largest economy.
The falls came despite data showing that the HSBC China Services PMI ran at its fastest pace in four months in February, climbing to a seasonally adjusted 53.9 in February from 52.5 in January. The reading contrasted with an official report earlier suggesting the sector was shrinking.
The U.S. dollar index, which measures the greenback against a basket of major currencies, was just below a two-week high of 79.51 as the darker economic outlook also hit commodity-linked currencies.
GERMAN DEBT SOUGHT
German Bund futures meanwhile rose to fresh record highs as the prospect of a contraction in the euro zone, including a sharp fall in activity registered by Italian and Spanish businesses, makes it tougher for these governments to tackle their debt problems.
The data undermined the positive sentiment which followed the ECB's second massive injection which helped indirectly to ease the borrowing costs of euro zone governments by encouraging banks to buy their debt.
The recent risk-positive sentiment was also dented on Friday when Spain set itself a softer budget target for 2012 than originally agreed under the euro zone's austerity drive, raising doubts over the credibility of the European Union's new fiscal pact.
The German Bund future was 13 ticks lower at 139.93, having hit an all-time high of 140.28 in the past week.
Italian two-year yields were up 8 basis points at 1.9 percent, while Spanish 2-year yields were up 7 bps at 2.39 percent. The cost of insuring debt issued by Italy and Spain against default also rose.
Gold prices fell 1 percent in Europe as the dollar rose to a two-week high against the euro on the softer-than-expected euro zone economic data. Spot gold was down 1 percent at $1,695.85 an ounce.
Copper, which has risen nearly 13 percent this year, edged down 0.8 percent on the London Metal Exchange (LME) to around $8,510 a tonne, pressured by weakness in equities and the euro and by concerns about Chinese demand for the red metal.
Oil also fell on the worries about Chinese demand, which overcame the supply concerns emanating form the Middle East, with Brent crude down about 0.5 percent to just under $123 a barrel and U.S crude futures for April falling $1.20 to a low of $105.50 per barrel.