The euro fell and European shares pared early gains on Wednesday after surprisingly weak data from regional powerhouse Germany offset signs that China's economic slowdown had eased.
Activity in Germany's manufacturing and service sectors declined for a sixth straight month in October as order books thinned, suggesting Europe's largest economy has clearly stagnated in the second half of 2012.
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The October Composite Purchasing Managers' Index (PMI) survey for the whole 17-nation euro zone bloc pointed towards a deepening recession across the rest of the region as activity hits its lowest levels since June 2009.
The euro lost 0.4 percent to $1.2929, dropping below Tuesday's low of $1.2952 to be well down on its peak of $1.3140 hit early last week.
A separate poll of 45 economists in Germany by the Munich-based Ifo think tank added to the gloom, finding that business sentiment had also dropped for a sixth successive month in October to levels below even the weakest of forecasts.
"October's euro zone PMI and German Ifo surveys continue to paint a pretty dismal picture of growth prospects in the region as a whole and confirm that Germany is also suffering," Ben May, European economist at Capital Economics said.
In share markets the FTSE Eurofirst 300 index shed some of its early gains on the data but remained up 0.1 percent at 1086.22 points, while London's FTSE 100 and the German DAX were little changed on the day.
SAFE HAVEN DEMAND
The gloomy data did encourage buying of save-haven German government bonds, sending the yield on 10-year Bunds down 2 basis points to 1.56 percent just ahead of an auction for 4 billion euros of new September 2022 bonds.
The economic concerns should ensure good demand for the debt sale after two 10-year auctions in September failed to attract enough bids to cover the amount on offer.
Overall the Markit Composite Purchasing Managers' Index (PMI), which polls around 5,000 businesses across the 17-nation bloc and is viewed as a reliable growth indicator, fell to 45.8 this month from a September reading of 46.1.
It followed HSBC's Flash Manufacturing Purchasing Managers Index (PMI) for China which rose to a three-month high of 49.1 in October, although still below the 50-point mark which separates contraction from expansion.
The contrasting fortunes of the two regions left world shares as measured by MSCI world equity index down 0.1 percent for a fourth straight day of losses.
World share markets have been weakening all week due to a string of disappointing earnings reports, particularly from many of the big multinational corporations in the United States.
On Tuesday, the Dow Jones Industrials index suffered its biggest drop since June 21 when DuPont and United Technologies added to the list by reporting that profit growth had slowed.
U.S. stock index futures pointed to further falls in the Dow with the futures down 0.2 percent although the S&P 500 index and Nasdaq 100 futures were up 0.1 percent, signalling modest gains..
However, Brent crude futures snapped a six-day losing streak after the Chinese data lifted hopes of greater demand from the world's No. 2 oil consumer. Brent hit a high of $109.28 a barrel before easing back to up 63 cents at $108.88 as the gloomy European picture clouded the outlook.
"The demand picture is looking less bad than it was," said Jack Pollard, research analyst at Sucden Financial.
Spot gold was steady at $1,709 an ounce after falling 1.2 percent to a six-week low of $1,703.50 on Tuesday as other assets fell.
But further gains across the commodity markets are likely to have to wait for the outcome of a U.S. Federal Reserve policy meeting later in the day.
The Fed unveiled a third round of bond purchases when it last met in September to try to rev up a sluggish economic growth and is not expected to take any fresh steps when it ends a two-day meeting later on Wednesday.