The euro zone economy showed signs of contraction in November and China's factory sector shrank by the most in more than 2-1/2 years, raising the risk the world is headed for a steep downturn.

Adding to the dark tone on the global economy on Wednesday, data showed consumer spending in the United States barely rose last month and investment plans by U.S. businesses looked the weakest since January.

Private business activity in the euro zone declined for a third straight month in November, according to surveys of purchasing managers, pointing to a fourth-quarter economic contraction of 0.5-0.6 percent, survey compiler Markit said.

The surveys reinforced widespread expectations the euro zone is slipping into at least a mild recession.

Even the German economy, the biggest in the 17-nation bloc and its strongest, looked sluggish. In addition, Berlin had one of its worst government bond sales since the launch of the single currency, showing no country in the region was fully immune from the euro zone debt crisis.

Things are likely to get worse before they get better, said Alan Clarke, an economist at Scotia Capital.

Many of the world's rich nations are cutting spending as they come to grips with a decades-long binge in borrowing. This newfound austerity and weak balance sheets around the globe are dragging on the world economy.

In China, factory activity contracted on signs of domestic economic weakness, with the HSBC flash purchasing managers' index (PMI) falling to 48 in November from 51 in October. It was the lowest reading since March 2009, and output fell even though export orders increased, reviving worries about a hard landing there.

The Chinese and European data drove global stock markets to six-week lows. Commodity prices also fell. Copper, a key industrial metal, hit a one month-low, and oil headed for its worst week since early October. The euro fell to its weakest level since Oct 6.

The data is showing signs of a global downturn but I don't think we've got a global recession on our hands, said Jeavon Lolay, head of global research at Lloyds Banking Group.

If it deteriorates from here then, yes, there is a chance that we get a significant downturn.

FALLING ORDERS

Shares in steel makers such U.S. Steel and AK Steel Holding Corp fell sharply on fears demand for the metal could suffer.

Latin America is also coming under pressure. Lending growth in Brazil slowed sharply in October and Finance Minister Guido Mantega said Europe's debt crisis was creating conditions similar to the economic meltdown of 2008.

In the United States, where weaker oil prices helped growth pick up in recent months even as some European economies contracted, the Commerce Department said consumer spending edged up only 0.1 percent last month, a sharp slowdown from September.

The government also said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.8 percent last month.

Separately, U.S. initial claims for unemployment benefits increased by 2,000 last week, while the Thomson Reuters/University of Michigan's final November reading on consumer sentiment rose.

TROUBLE IN EUROPE

Markit's flash euro zone composite PMI, often used as a barometer of growth, nudged up to 47.2, marking its third month below the 50 mark that divides growth from contraction.

Forward-looking indicators showed optimism crumbling, new orders falling, and virtually no jobs growth. Chris Williamson, chief economist at Markit, said the report meant that services growth will weaken further in coming months.

Separately, industrial new orders in the euro zone registered their biggest decline in September since December 2008, the EU reported. The 6.4 percent decline greatly outstripped the 2.5 percent fall economists had forecast.

The European Central Bank cut interest rates by 25 basis points to 1.25 percent this month. With new President Mario Draghi having warned of a mild recession by the end of the year, it is expected to cut again in the coming months.

But it is increasingly clear that with interest rates already so low, European policy makers don't have a solution to avert another recession.

CRACKS IN CHINA

China's flash PMI, the earliest readout of the Asian giant's industrial activity, underscored expectations Beijing will lean more on policies to support growth than fighting inflation.

They are not going to want this to go too far, said Tim Condon, head of Asia research at ING. I'm not sure if it (PMI) is a tipping point but I think it adds to the evidence.

The drop largely reflected domestic weakness, as both output and new orders shrank even as export orders continued to grow.

HSBC, which sponsors the China flash PMI, again took what has been a consistently upbeat view whenever the PMI data disappoints analysts and financial markets.

There remains no need to panic, said HSBC economist Qu Hongbin.

(Additional reporting by Jason Lange and Lucia Mutikani in Washington; Editing by Ross Finley and Leslie Adler)