Stagnant growth in Europe's powerhouse Germany knocked stocks lower on Tuesday and hit the euro, adding to investor fears that the world economy is slowing more than expected.
Focus was also on a meeting in Paris between French President Nicolas Sarkozy and German Chancellor Angela Merkel, with investors looking for any signs of new measures to contain the spreading euro zone debt crisis.
Germany's gross domestic product grew just 0.1 percent in April-June from the previous quarter, below market expectations for an expansion of 0.5 percent.
The global slowdown is gradually reaching Germany, said Andreas Scheuerle, economist at Dekabank.
The data showed Germany was actually growing at a slower pace than battered, debt-ridden Spain, where gross domestic product grew by 0.2 percent in the second quarter.
Germany's slowdown sent European stocks lower, dragging world equities with them.
The FTSEurofirst 300 was down more than 1 percent and MSCI's all-country world stock index lost a third of a percent.
Stocks have been rebounding somewhat from a battering that took the MSCI index down as much as 20 percent from a three-year high in May.
The U.S. S&P 500 index gained 2.18 percent on Monday. Japan's Nikkei closed up 0.23 percent on Tuesday.
The euro was down against both the Swiss franc and the dollar, extending losses after the German data.
It was down 0.8 percent against the Swiss franc at 1.1232 francs and 0.4 percent against the dollar at $1.4301.
The Swiss franc has been a key safe haven for investors during recent market turmoil.
Gold, the other major choice and one of the best-performing assets this year, was up around half a percent at $1773 an ounce.
German government bonds firmed after the growth data, with short-dated paper outperforming.
Some investors were hoping the Franco-German meeting later in the day would come up with ways to improve euro zone governance.
Talk of common euro zone bonds -- increasingly seen as a powerful tool against the region's debt hurdles -- in some of the German media in recent days has lifted hopes before the meeting in Paris.
Both countries have said, however, that euro bonds are not on the agenda.
(Additional reporting by Marius Zaharia; Editing by Catherine Evans)