Weak Japanese economic data on Monday tempered investors' optimism about the European Central Bank's plans to tackle the region's debt crisis, leaving world stocks slightly lower and the single currency little changed.
Japan said its economy grew 0.3 percent in April-June from the first quarter, half as much as expected, as Europe's debt crisis weighed on export demand and consumer spending began to lose momentum.
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The numbers followed last week's dismal Chinese trade figures and data showing factory output in Europe's main economy Germany had fallen by more than expected in June, raising concerns that the slowdown in global growth is accelerating.
"The latest round of global data releases shows that European activity is the main drag on the global economy at present," said Jose Wynne, a foreign exchange strategist at Barclays Capital, in a note.
The MSCI world equity index was down just 0.05 percent at 322.78 points after rising 1.65 percent last week, its fourth straight week of gains.
The FTSEurofirst 300 index of top European company shares was virtually flat at 1,099 points in early trading, having slipped 0.1 percent on Friday to end a two-week surge which had lifted the index by 8 percent.
U.S. stock index futures also pointed to a lower open on Wall Street on Monday, with futures for the S&P 500 down 0.33 percent, Dow Jones down 0.22 percent and Nasdaq 100 down 0.24 percent.
CENTRAL BANK SUPPORT
Further falls in equities are likely to be limited by hopes that the weak data will see a further round of easing by major central banks, and by expectations that the ECB is ready to act soon to ease funding pressures on peripheral euro zone nations.
ECB President Mario Draghi raised hopes for fresh intervention two weeks ago when he said the bank was "ready to do whatever it takes to preserve the euro".
This led to speculation the bank would restart its purchases of Spanish and Italian debt to reduce their borrowing costs. However, uncertainty over the timing and details of this aid remains.
Belgian ECB member Luc Coene raised his concerns over the weekend that a new wave of purchases could once again take the pressure off governments to repair their finances.
"Central bank action hopes puts some kind of floor (on equity markets). We have to see how quickly this materialises," Gerhard Schwarz, head of equity strategy at Baader Bank, said.
The euro was up 0.3 percent at $1.2315, though it was expected to maintain its gradual path lower after hitting a one-month high of $1.2444 last Monday.
"It's a low-key start to the week ... The market is mindful of ECB risks (the risk of ECB action) but less concerned than it was," said Jeremy Stretch, head of currency strategy at CIBC.
GDP DATA EYED
Markets are now waiting the first estimate of second quarter growth for the euro area, due on Tuesday, which is likely to confirm the region is contracting after registering no growth in the first three months of the year.
Although there is widespread recognition that struggling parts of the 17-country bloc are in for an extended spell of economic gloom, the speculation is that the latest bout of turmoil will push even powerhouse Germany back into recession.
German government bond prices - traditionally favoured by risk-averse investors - were slightly firmer on Monday ahead of the GDP data release with German 10-year yields falling 5 basis points to 1.39 percent.
Spanish 10-year yields were flat at 6.91 percent while equivalent Italian yields were 3 basis points up at 5.89 percent.
Italy's one-year borrowing costs did inch higher to 2.767 percent at an auction of fresh one-year bills on Monday as the uncertainty over ECB action limited demand.
The signs of slowing world economic activity and its impact on demand for oil would normally have sent Brent crude futures lower but instead concerns over supply have kept prices up.
The North Sea crude production, which underpins the Brent crude contract, is set to hit a record low. Iranian output has been curbed by sanctions and an intensification of debate in Israel on whether to go to war with Iran over its nuclear work added to concern about disruption in Middle East supply.
"The Israeli comments, what you see in Israeli media, is a concern. A major concern," said Ben Le Brun, a Sydney-based market analyst at OptionsXpress.
Brent crude, hit its highest level since May 4 at $114.28 a barrel, up $1.29. U.S. oil rose 58 cents to $93.45 a barrel.