LONDON (Reuters) - Rising concern about global growth triggered falls in shares and commodities on Thursday after data showed Chinese and European factory activity slowing and the Federal Reserve extended its stimulus policy due to a weakening U.S. recovery.
In Europe, preliminary manufacturing and service sector data across the 17-nation euro area showed the downturn in the region was becoming entrenched as falling new orders and rising unemployment hit business confidence.
The survey data also showed that Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low.
"It is a worryingly steep downturn we are seeing (in Europe) and it is spreading from the periphery, which has been falling at an increased rate, through to Germany," said Chris Williamson, chief economist at Markit, which compiled the data.
A similar survey of private sector activity in China, compiled by HSBC, found its factory sector had shrunk for an eighth straight month in June on weaker demand for exports.
Economic growth in the world's most populous nation is widely expected to have slowed for a sixth straight quarter in April through June as the country feels the impact of the euro area debt crisis and property controls weigh on domestic demand.
MSCI's global equity index .MIWD00000PUS saw a fall 0.4 percent to 309.95 points after all the data, snapping a week of steady gains. U.S. stocks are also set to open lower .N
Brent crude touched an 18-month low of $91 a barrel before recovering to around $91.62, copper dropped 1.5 percent to $7,442 a tonne and gold fell below $1,600 an ounce.
The falls began after the Fed chose on Wednesday to extend its bond-buying program, dubbed "Operation Twist", rather than implement more quantitative easing as some had hoped.
The U.S. central bank made its decision after lowering growth and employment forecasts for the world's largest economy in 2012 and 2013. It said it would consider more stimulus measures if the situation worsened.
The dollar meanwhile firmed against a basket of major currencies .DXY after the Fed's move, to be up 0.13 percent at 81.72 on its trade-weighted index, above a one-month low of 81.18 set earlier this week.
U.S. government bonds trading in Europe held steady.
However, the weak economic data in Europe, which raised hopes the European Central Bank will soon cut interest rates, saw the single currency drop 0.4 percent to $1.2650, down from a high of $1.2744 on Wednesday.
"Recent declines in oil prices towards 90 euros a barrel will only have further dampened the immediate inflation outlook. The stage would therefore be set for a rate cut," said James Nixon, chief European economist at Societe Generale.
The FTSEurofirst 300 index .FTEU3 of top European company stocks was down 0.5 percent at 1,009.60 points after hitting its highest closing level since May 11 on Wednesday.
Spain's financial problems were also undermining confidence in the financial markets.
The nation's borrowing costs hit a new euro era high at a 2.2 billion euro ($2.8 billion) sale of new medium-term bonds, when yields on the five-year debt rose to 6.07 percent, up from 4.96 percent just last month.
This contrasted with France's sale of bonds maturing in 2014 for just 0.54 percent, showing that fears Spain might have to take a full sovereign bailout are driving investors into less risky debt.
The Spanish auction result came just hours before Madrid is due to release the results of an independent audit of its banks, which could set the stage for a formal request for European assistance to prop them up.
Euro zone finance ministers have already agreed to lend Spain up to 100 billion euros to rescue its banks but, as these loans will only worsen the government's fiscal position, many analysts believe the country will need a full-scale bailout.
However signs that the euro zone is slowly moving to help Spain have eased pressure in the secondary market for its debt, with 10-year bond yields falling 23 basis points to 6.53 percent on Thursday after rising to close to 7.3 percent last week.
But safe-haven German Bund prices were on the rise, after hitting their lowest level in nearly eight weeks on Wednesday, sending 10-year bond yields down two basis points to 1.59 percent.
Euro area finance ministers are due to meet later in the day when they will discuss a proposal to extend a deadline for Spain to meet its budget deficit target and a plan to allow Europe's new bailout fund to buy government debt.
The debt-purchasing plan, floated by Italian Prime Minister Mario Monti at this week's G20 summit, is controversial and may not be decided until an EU leaders meeting next week.
The finance ministers are also expected to discuss the next steps with Greece, following the formation of a coalition of mainstream parties committed to the country's 130 billion euro EU/IMF bailout but determined to renegotiate some of the terms.
The combination of weaker global demand outlook and worsening euro zone crisis had a big impact on oil markets with Brent crude oil touching its lowest level since December 2010.
"Disappointment over the economic situation, the euro zone crisis, high risk aversion and strong downward momentum all mean investors are staying away from oil," said Eugen Weinberg, head of commodities research at Commerzbank.
Brent crude oil futures for August did recover slightly to trade around $91.70 a barrel while U.S. crude was down 80 cents at $80.65 per barrel, after earlier hitting an eight-month low of $79.92.
Disappointed mainly by the limited stimulus measures from the Federal Reserve, gold buyers retreated to send the precious metal to just below $1,600 an ounce, down around 0.4 percent.
Additional reporting by; Editing by Will Waterman