Recent signs that the world's biggest economy may be sliding into recession unsettled European and Asian stocks on Friday, and helped push the dollar to a near three-week low versus a basket of currencies.

Adding to worries was news that thousands of Turkish troops have crossed into northern Iraq in their hunt for Kurdish PKK guerrillas -- the first major incursion in a decade that is set to heat up the geopolitical scene.

U.S. data on Thursday showing mid-Atlantic factory production slumped to its lowest level since the 2001 recession, and an index of future U.S. economic activity pointed to even tougher times ahead had sparked a global selloff in stocks.

After the previous session's sharp fall though, Wall Street looked set for a steadier start on Friday with U.S. stock futures trading just a touch lower.

The FTSEurofirst 300 index of top European shares fell 0.4 percent while London's FTSE shed 0.2 percent. Germany's DAX was 1.2 percent lower, further weighed by disappointing profits from the country's second-largest utility RWE.

The problem is you have a slowdown of the economy and in addition rising oil prices, said Achim Matzke, European stock indexes analyst at Commerzbank.

That's why equity markets are cautious. From a technical point of view the European market is in a bear market.

Earlier, Japan's Nikkei lost 1.4 percent, while MSCI's measure of other Asian stock markets slid 0.6 percent. MSCI's main world equity index was 0.1 percent lower.

With no major U.S. data due on Friday, analysts said the near-term outlook for markets doesn't look promising.

Investors will begin next week with the awful February Philly Fed survey fresh in mind; and amidst widespread fears that a U.S. recession is now a fait accompli, it may take a succession of positive figures for any genuine optimism to resurface, said Neil Mellor at Bank of New York Mellon.


Safe-haven government bonds, which normally benefit from heightened risk aversion, failed to gain much traction with European bonds subdued after a report showed euro zone services growth unexpectedly bounced back in Feburary from a 4-1/2 year low.

The 10-year Bund yield was little changed near 4.0 percent, and the 2-year yield was flat at 3.326 percent.

The euro benefited from the data, which challenged the case for an imminent rate cut by the European Central Bank, and rose to a three-week high of $1.4853.

Against a basket of currencies, the embattled dollar slipped 0.2 percent to a near three-week low of 75.472.

The market today is focused on dollar selling, said Derek Halpenny, senior currency economist at BTM UFJ.

The ECB has held its benchmark rate at 4 percent since last June while the Fed has slashed its key rate to 3 percent. The U.S. central bank is widely expected to take rates down to 2.5 percent next month.

Seen as a safe haven in times of market woes, gold edged up to $945.20 an ounce, not far off its all-time high of $953.60 set a day earlier.

Dealers said gold's uptrend remained intact with the prospect of more U.S. interest rate cuts supporting its appeal as an alternative investment.

U.S. crude reversed early losses to be up 30 cents at $98.53, but remained some way off a record high above $101 a barrel set earlier in the week.

(Editing by David Christian-Edwards)