Growth worries, U.S. fiscal fears hit stocks


European shares fell for a second day running on Thursday, hit by evidence that the debt crisis has slowed euro zone economic activity and by persistent concerns about fiscal problems in the United States.

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 due later is expected to show the wider euro zone has slipped back into recession.

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"Germany is heading towards stagnation due to the collapse in southern Europe," Gustav A. Horn, Director of the IMK Economic Institute. "The biggest concern, however, is that companies are investing less. That usually points to a recession.

A jump in consumer spending helped France to post a surprise rise in third quarter GDP of 0.2 percent, but economists expect data at 1000 GMT to show the 17-nation single currency region contracted 0.2 percent for the second quarter in a row.

The FTSE Eurofirst 300 index <.FTEU3> of top European shares was down 0.6 percent at 1,082.01 points, having fallen 1 percent on Wednesday, while the euro zone blue chip index <.STOXX50E> also dropped 0.6 percent to 2,457.77.

World equity markets entered their seventh successive trading day of losses due to the prospect of drawn-out talks in Washington over how to avoid the "fiscal cliff", spending cuts and tax rises due early next year which could pitch the world's biggest economy back into recession if they go ahead.

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.

The MSCI world equity index <.MIWD00000PUS> was down 0.15 percent at 318 points and has now lost 3.3 percent this month.

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

Benchmark Brent crude firmed 0.2 percent to around $109.80 a barrel, having risen more than 1 percent on Wednesday

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 favors further monetary policy easing by the central bank, is expected to win.

The yen hit a 6-1/2-month low against the dollar at 80.75 yen, and fell to 102.95 against the euro.

The single currency, which generally moves in line with riskier assets, rose 0.1 percent to around $1.2750, having halted a five-day slide that had taken it to its lowest in more than two months.

(This story was fixed to correct institute's name in third paragraph)

(Reporting by Richard Hubbard. Editing by David Stamp)