NEW YORK (Reuters) - Stocks on major world markets fell on Monday as investors fretted about disappointing economic data in Asia, while EU finance ministers met again to grapple with the euro zone's debt crisis.
Wall Street stocks ended the day modestly lower as investors were also bracing for the start of the corporate earnings reporting season for the second quarter, with Alcoa (AA.N) reporting results late Monday.
Weaker-than-expected Chinese inflation data and a record fall in Japan's machinery goods orders added on to last Friday's dismal U.S. jobs report and raised concerns the global economy is hitting a soft patch.
Doubts that a meeting of euro zone finance chiefs will result in much progress further dented sentiment, while yields on benchmark Spanish and Italian bonds were moving up to levels considered unsustainable.
Diplomats said on Monday that Europe will grant Spain an extra year to reach its deficit targets after it outlines further budget savings to a finance ministers meeting in Brussels.
"While reasons for optimism seem to be few and far between these days, reasons for extreme pessimism are too," said Randy Frederick, managing director of active trading & derivatives at Charles Schwab.
"Although structural issues in Europe are far from resolved, it appears that the threat of a near-term market meltdown has been somewhat alleviated for now."
Speculation policymakers will step in with further efforts to boost the economy helped to limit losses.
The euro recovered against the U.S. dollar in a technical rebound from a two-year low earlier in the session.
The euro was last up 0.2 percent against the dollar at $1.2314 after climbing as high as $1.2324 and well off a low of $1.2255 hit in early trade.
"There's a significant amount of traders short euro and therefore it is not particularly unusual to see unexplained bursts of short-covering," said Kathy Lien, managing director of FX strategy at BK Asset Management.
The FTSEurofirst 300 index .FTEU3 ended down 0.4 percent at 1,030.09. The MSCI world index .MIWD00000PUS, hit by a weaker session in Asia, was down 0.6 percent, a fourth straight day of declines.
The Dow Jones industrial average .DJI fell 36.18 points, or 0.28 percent, to 12,736.29. The Standard & Poor's 500 Index .SPX slipped 2.22 points, or 0.16 percent, to 1,352.46. The Nasdaq Composite Index .IXIC was off 5.56 points, or 0.19 percent, to 2,931.77.
In the United States, investors were bringing their attention closer to home with Alcoa's results after the closing bell.
The aluminum producer reported a second-quarter net loss as the price of metal slumped but earnings excluding items beat expectations. Alcoa's shares edged higher in afterhours trading.
"We think (second quarter) earnings for the S&P 500 will be OK this quarter ... we're calling for a small 2 percent beat. That said, we expect the tone of earnings season to be quite negative," said Jonathan Golub, chief strategist at UBS.
Corporate outlooks are at their most negative in nearly four years and companies that have already reported have shown lackluster growth. Nearly two dozen S&P firms have already cited Europe's woes - which seem to be worsening - as a concern.
Three top U.S. Federal Reserve policymakers laid the groundwork for a third round of bond purchases, or quantitative easing, to prop up the struggling economy.
Still, divisions were evident as Richmond Fed President Jeffrey Lacker reiterated his opposition to a new bout of stimulus.
Meanwhile, European Central Bank President Mario Draghi kept the door open to further interest rate cuts after the ECB cut its key rate to a record low 0.75 percent last week.
Expectations the U.S. central bank will unleash QE3 pushed Treasury debt prices higher, with benchmark yields hovering above historic lows. The benchmark 10-year U.S. Treasury note was up 12/32 in price for a yield of 1.52 percent.
"Economic momentum is trending lower," said Sharon Stark, chief fixed income strategist at Sterne Agee & Leach in Birmingham, Alabama. "Traders are preparing for another round of quantitative easing after three straight months of below-consensus jobs growth."
Crude oil prices climbed as a strike by workers and a planned lockout by companies threatened to completely shut Norway's crude oil production.
Brent rose $2.04 to $110.23 a barrel and U.S. crude settled up $1.54 at $85.99.