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LONDON (Reuters) - World shares fell on Thursday as confirmation that Europe is slowly dragging itself out of recession failed to offset worries about China's slowdown and its impact on corporate earnings.
Data showing better German business morale and the British economy gathering pace came in line with expectations and pointed to only modest growth ahead, doing little to spark fresh demand from investors worried about developments in Asia.
"We don't expect a strong recovery in Europe," said Philippe Gudin de Vallerin, head of European economics research at Barclays. "Risks are also coming from China where we have seen further evidence of its economy slowing."
Germany's influential Ifo think-tank said business morale in Europe's largest economy had improved for a third straight month in July thanks to higher exports and consumer demand.
Britain then reported its economy had grown 0.6 percent between April and June compared with the previous three months, and by 1.4 percent from the same period a year ago - its best performance since early 2011.
A surprise drop in Spain's unemployment rate - the first for two years - added to signs its long recession is bottoming out.
After the data, the euro edged up 0.1 percent to around $1.3210 and German Bund futures slipped 0.2 percent, but activity was light.
Share markets retreated after a recent strong run upwards as investors fretted about mixed results from blue-chip companies and China's slowdown.
Readings later on the health of the U.S. labor market and on orders for long-lasting manufactured goods could stem the declines but stock index futures signaled Wall Street would join in the retracement. .N
Europe's broad FTSEurofirst 300 index .FTEU3 had fallen 0.7 percent by 1200 GMT as it retreated from eight-week highs scaled as fears of an early end to Federal Reserve's loose monetary policy have eased.
BASF, the world's largest chemical company, was among the biggest losers, citing China's slowdown a particular concern.
"The Chinese growth engine is no longer running at full power," the German firm said, adding that it would have to slow the pace of new staff additions in all emerging markets.
Data on Wednesday showed manufacturing in China running at an 11-month low in July, complicating the government's efforts to shift the economy away from its heavy reliance on exports, and heightening fears of a sharp drop in growth.
Chinese stocks suffered their second consecutive loss on Thursday despite measures from the government to spur the economy, including help for exports and railway investment.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent from the previous day's seven-week closing high, to leave the MSCI world equity index .MIWD00000PUS 0.4 percent down.
Worries about China were also reflected in commodity markets where copper fell over 1 percent to $6,969 a tonne, ending a five-day run that had taken the industrial metal to a one-month high.
Brent crude oil fell for a second day, down 35 cents to $106.85 a barrel, after settling on Wednesday at its lowest since July 4.
"China has been and remains the key driver of global oil demand, the dynamism of which has this year been lagging considerably behind the expansion of supply. Weaker demand from China would thus cause the oversupply to increase even further," Carsten Fritsch of Commerzbank said.
Additional reporting by Marc Jones and Peg Mackey; Editing by Catherine Evans