Growth worries, U.S. fiscal fears hit shares

World share markets fell for a seventh day on Thursday, hit by evidence that Europe's debt crisis has stalled economic growth and as concern over the fiscal problems facing the United States ratchets up.

Economic growth in Germany, Europe's largest economy, cooled to 0.2 percent over the July-September period compared with the previous three months, while data showed the wider 17-nation euro zone has slipped back into recession.

"The global economy faces some severe headwinds. Against that backdrop we see short-term de-risking of portfolios," said Abi Oladimeji, head of investment strategy at Thomas Miller Investment.

The FTSEurofirst 300 index <.FTEU3> of top European shares was down 0.5 percent at 1,083.40 points, having fallen 1 percent on Wednesday. London's FTSE 100 , Frankfurt's DAX and Paris's CAC-40 were around 0.2 to 0.4 percent lower.

Economic output in the euro area fell 0.1 percent in the third quarter after falling 0.2 percent in the April to June period, sending the region into its second recession since 2009.

"The double-dip is a fact," said Martin Van Vliet, an economist at ING Bank. "What you notice is that the recession in southern Europe is slowly creeping to other countries."

WORLD WORRIES

The MSCI world equity index <.MIWD00000PUS> was down 0.15 percent at 318.15 points and has now lost 3.3 percent this month. MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 1 percent.

World stocks are now on course for a seventh successive day of losses, spooked by the prospect of a slowdown in the giant U.S. economy if it doesn't find a political agreement to avoid the 'fiscal cliff' - a series of spending cuts and tax rises due to take effect early next year.

U.S. stocks fell more than 1 percent on Wednesday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a budget battle with Congressional Republicans.

U.S. stock index futures pointed to a slight recovery for Wall Street on Thursday, though data on the jobs market, consumer inflation and business activity in New York and Philadelphia will be closely watched.

The unveiling of an older, conservative new leadership line-up in China on Thursday also appeared to dent hopes that the government would take bold steps to deal with slowing growth in the world's second-biggest economy.

The retreat from riskier assets also weighed on commodities, though oil held its gains after jumping in the previous session as Israel launched an offensive against Palestinian militants in Gaza.

Benchmark Brent crude rose 26 cents to $109.87 a barrel, having risen more than 1 percent on Wednesday. U.S. oil edged up 6 cents to $86.38, after ending 94 cents up.

JAPAN EASING

Bucking the gloom, Tokyo's Nikkei rose 1.9 percent as the boost given to exporters such as Toyota Motor Corp <7203.T>, Honda Motor Co <7267.T> and Canon Inc. <7751.T> from a weakening yen outweighed global concerns.

The yen has fallen against the dollar and the euro after Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election next month that the opposition Liberal Democratic Party, which has called for aggressive monetary easing to support growth, is expected to win.

The yen hit a 6-1/2-month low against the dollar at 81.08 yen and fell to 103.30 against the euro.

The single currency, which generally moves in line with riskier assets, inched up 0.1 percent to $1.2755, recovering from Tuesday's two-month low of $1.2661.

Some analysts said investors were wary of selling the euro heavily in case policymakers surprised markets with decisive action to tackle the euro zone debt crisis.

"They don't want to sell into it too aggressively in case there's a policy response from the European Central Bank that would see people get stopped out of shorts," said Geoffrey Yu, currency strategist at UBS.

However, the single currency is seen as vulnerable to concerns about slowing growth and uncertainty over aid for Greece and Spain.

(Additional reporting by David Brett and Nia Williams)