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LONDON (Reuters) - European shares fell to their lowest level in a month on Monday in the face of uncertainty over how much longer the current U.S. stimulus would continue, while data underscoring the fragility of China's economy weighed on oil.
European stocks .FTEU3.STOXX50E followed a fresh dive on Asian markets to fall 1 percent, as the week, which includes key U.S. jobs data and the monthly meetings of the European Central Bank and Bank of England, got underway.
"The overall theme for the coming weeks is going to be a very volatile trading environment and you are going to have the U.S. and Japan being a significant driver to what is happening in Europe," said Rabobank strategist Lyn Graham-Taylor.
A mixed reading in Chinese data kept intact worries about its growth momentum and weighed on oil as it slipped to $100 a barrel for the first time in a month, though the figures were not bad enough to trigger active selling in other growth-sensitive commodity or currency markets.
In the debt market, safe-haven German bond futures saw as steady start to the week while there was more selling of euro zone periphery debt amid signs it 10-month rally may be drawing to a close.
Speaking in China, ECB President Mario Draghi gave investors, already wondering if a scale back of Federal Reserve stimulus will reverse some of the falls in euro zone periphery bond yields over the last year, further food for thought.
He said its yet-to-be-tested OMT bond buying program was "designed to keep government bond yields just below 'panic' levels" not help government solvency and that it would not intervene if spreads were "fundamentally justified.
The dollar index .DXY, measured against a basket of six key currencies, dropped 0.3 percent as it hovered near the three-week low it hit at the end of last week. That weakness and a growing view that the ECB is unlikely to cut interest rates again this week, pushed the euro up 0.4 percent at $1.3020.
China's factory activity shrank for the first time in seven months in May and growth in the services sector cooled, evidence that the world's second-largest economy lost momentum in the second quarter.
These reports followed a weekend release that showed China's official PMI rising more than forecast in May, however.
ANZ said in a commentary that the data did not change its view on China's softening economic conditions.
"Structural reforms are needed in order to help sustain the growth prospect ... inconsistent data will continue to complicate China's economic policy making and potentially impair the judgment of policymakers," the Australian bank said.
The broadly bearish sentiment took a toll on Japan's Nikkei stock average .N225 again, with it sliding another 3 percent to a six-week low. .T
Wall Street was expected to open mixed, with market direction likely to be determined by the May ISM manufacturing index which comes ahead of the more important monthly non-farm payrolls report due on Friday.
Data on Friday showed U.S. Chicago Purchasing Managers Index rose far more than expected, fanning worries about the Fed slowing its bond purchases later this year and sending U.S. Treasury prices lower on Friday, capping the worst month for the market in nearly 2-1/2 years.
Reporting by Marc Jones; Editing by Toby Chopra