Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses Thursday, after fears that Europe's debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries.

The gloomy mood was not improved by a private sector survey indicating China's factory output shrinking again in December, adding to the headwinds facing a global economy struggling with sluggish U.S. growth and the euro zone sliding back into recession.

We're quite bearish about the world at the moment, said Damien Boey, equity strategist at Credit Suisse in Sydney. You're looking at basically the three major economies in the world causing problems.

The market view that a European Union summit last week had failed to produce a solution to the crisis was reinforced when Italy was forced to pay an eye-watering 6.47 percent on 5-year bonds on Wednesday, a record borrowing cost for the euro era.

Japan's Nikkei fell 1.3 percent and MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was down 1.8 percent, following losses of around 1 percent on Wall Street and a steeper sell-off in Europe.

The MSCI Asia ex-Japan is down 20 percent for 2011 -- the rule-of-thumb definition of a bear market -- while the Nikkei has lost about 17.5 percent. Both have underperformed global equities <.MIWD00000PUS>, which have lost around 12.5 percent, and U.S. stocks <.SPX>, which are only down around 3.5 percent.

Europe remains investors' biggest worry, with markets still braced for ratings agency downgrades of euro zone sovereigns.

Markets are frustrated and disappointed, waiting for a road map on the resolution of the two-year-old debt crisis, said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore. Risk assets are all down. The debt crisis will be with us at least through the first half of 2012.

Equity losses in Hong Kong <.HSI> and Shanghai <.SSEC> deepened after the release of HSBC's China flash PMI, the latest piece of data to show the world's second largest economy losing steam, but reaction in broader markets was muted.

COMMODITY SLIDE

Wednesday's stock market declines were dwarfed by carnage in commodity markets, where oil, gold and copper shed 4-5 percent.

Gold has been hammered in recent days as fund managers liquidate their holdings, either to cover losses elsewhere or to lock in profits on an asset that is still up more than 10 percent for the year.

Some macro hedge funds are liquidating gold holdings and taking profits in a difficult year, said James Steel, chief technical analyst at HSBC.

The precious metal edged down a little further on Thursday to around $1,572 an ounce, while U.S. crude oil inched up to $95.20 a barrel and Brent crude bounced more than 50 cents to around $105.60.

The euro fell as low as $1.2944, its weakest level since Jan. 11, and was later steady around $1.2990.

A downgrade by ratings agency Fitch of five major European financial groups, including France's Credit Agricole  to A-plus from AA-negative, added to the already euro-negative sentiment.

This comes on top of the prospect of further cuts by rival Standard & Poor's, which warned earlier this month it could downgrade the ratings of 15 of the 17 euro zone members.

I can see the U.S. dollar keep trending higher while the euro flounders, said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

(Additional reporting by Miranda Maxwell in Melbourne, Jane Lee in Kuala Lumpur and Frank Tang in New York; Editing by Richard Borsuk)