World stocks hit a three-week low on Thursday, following a sharp fall on Wall Street, as disappointing European corporate results and weak U.S. data fanned concerns about the strength of the economic recovery.

Oil major Royal Dutch Shell fell more than 3 percent after its third quarter net profits fell 73 percent and Chief Executive Peter Voser warned of a slow recovery.

Wednesday's data showed sales of new U.S. homes unexpectedly tumbled in September, posting their first drop in six months. Improvement in the U.S. housing market -- the epicenter of the credit crisis -- is essential for a global recovery to be sustainable.

Investors are also nervous about Thursday's third-quarter U.S. growth data. The world's biggest economy is expected to have grown an annualized 3.3 percent in the period after a contraction of 0.7 percent in the previous quarter.

Markets are worried that the rally in world stocks -- the benchmark MSCI world equity index was up as much as 75 percent this month from March -- has been overdone.

Markets had run ahead of themselves and are correcting, said Bernard McAlinden, market strategist at NCB Stockbrokers. There are worries U.S. GDP figures may be weaker than expected, with other economic data like home sales not that great. The MSCI index <.MIWD00000PUS> fell 0.3 percent, while the FTSEurofirst 300 index <.FTEU3> was steady having fallen around 0.2 percent earlier.

A far less benign economic data backdrop characterizes the current bout of risk aversion compared to previous episodes in the 7-month risk rally. Even a positive surprise in Q3 GDP in the U.S. is unlikely to disrupt this pattern, Citi said in a note to clients.

Emerging stocks <.MSCIEF> fell 1.6 percent.

U.S. crude oil was steady at $77.45 a barrel.


Bonds have jumped on the stall in the stock market rally and Japanese government bonds rose. But in Europe December bund futures were steady, unable to capitalize ahead of a large Italian bond sale later.

The dollar hit a two-week high <.DXY> against a basket of major currencies before slipping.

The yen rose broadly, briefly hitting a one-week high of 90.25 per dollar, as investors took profits on a host of growth-linked trades that had been in vogue in recent months.

The New Zealand dollar fell 0.2 percent to $0.7190 after the country's central bank promised to hold interest rates at a record low at least until July after dropping its easing bias as expected, disappointing those who had expected an early tightening.

(Additional reporting by Joanne Frearson; editing by Patrick Graham)