World stocks extended losses on Thursday and the dollar hovered near a one-month lows against major currencies after a run of dismal economic data pointed to a faltering recovery in the United States.
Fears the global economy could be headed for a more prolonged soft patch than expected pushed oil prices down for the second day running and kept U.S. 10-year bond yields close to the six-month lows they hit in the previous session.
Investors remained on the sidelines ahead of key U.S. jobs data due on Friday, with their appetite for risk-taking also hit by lackluster data from emerging and other developed economies.
The outlook is darkening. It must be worrying for the global economic authorities. It has cost about $10 trillion worldwide to create the impression of an economic revival and we have nothing to show for it, said Jeremy Batstone-Carr, strategist at Charles Stanley.
He was referring to the enormous amounts of cash stimulus central banks around the world pumped into their economies to boost growth after the 2008 financial crisis.
With the U.S. Federal Reserve set to wrap up its $600 billion bond buying program later this month, the signals of more economic weakness ahead are especially worrying for riskier assets such as equities, high-yield bonds and emerging markets.
By 5 a.m. EDT, the MSCI index of global equities had fallen 0.8 percent, extending the previous session's 1.2 percent decline after U.S. data showed private sector job creation was way below forecasts in April.
Factory growth worldwide also weakened last month, surveys from Europe to Asia showed earlier.
All that fueled a 2.3 percent tumble in the S&P 500 U.S. index <.SPX>, the biggest one-day fall since mid-August 2010.
Emerging equities shed 1.2 percent <.MSCIEF>, with Chinese markets closing 1.4 percent lower at a four-month low <.SSEC>.
European stocks also fell. The FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.9 percent, after a one percent tumble on Wednesday.
Mining and energy firms were hardest hit as investors fretted that global commodity demand would weaken. Stocks such as Antofagasta
Earlier in Asia, Japanese shares fell 1.7 percent <.N225>, hit also by the political backdrop as Prime Minister Naoto Kan said he would resign once he gets a nuclear crisis under control.
DOLLAR, OIL, METALS HIT; BONDS RALLY
Markets are now awaiting U.S. non-farm payrolls data, seen as the best barometer of the world's largest economy, with analysts slashing their estimates on job creation.
The median forecast of U.S. payrolls growth in May in a Reuters poll was revised down to 150,000 from the prior forecast of 180,000 after a report on Wednesday reflected weak private sector employment activity.
The dollar remained near a one-month low against a basket of currencies <.DXY> and hovered near a record low versus the Swiss franc on Thursday.
I don't think anyone is really expecting Friday's U.S. employment data to be strong. Investors have already tried to price in possible low figures on Friday, selling the dollar, said Sumino Kamei, a senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
A lot will depend on whether yields on U.S. debt stay depressed for a while longer.
Ankita Dudani, currency strategist at RBS in London added: We're in a stage where the dollar will be soft if people become concerned about weak U.S. data, as QE3 could become a by-product of that.
She was referring to the possibility of a third phase of U.S. quantitative easing -- effectively more money printing by the Fed once its current program ends.
The euro rose half a percent against the greenback to a three-week high, though Greece's debt woes were seen capping the single currency's gains. Moody's on Wednesday cut Greece's ratings by three notches deep into junk territory.
Recent data weakness has seen investors pile into U.S. Treasuries, with 10-year yields falling under 3 percent on Wednesday for the first time since last December. Treasuries dipped only slightly off those levels while German Bunds and UK gilts rallied as the flight to safety continued.
Bunds were at four-month highs.
On global commodity markets, crude futures fell for the second day in a row while metals prices also extended losses.
By 5 a.m. EDT, Brent oil fell 44 cents to $114.09 a barrel, while U.S. futures lost 58 cents to $99.71. Fears of a slower U.S. recovery deepened after data showed a 3.5 million-barrel jump in U.S. crude stockpiles last week, according to the American Petroleum Industry report.
Traders are also pricing in the possibility of an output rise next week by the OPEC group of oil producing nations.
(additional reporting by Kevin Plumberg in Singapore; Brian Gorman and Naomi Tajitsu in London; Editing by John Stonestreet)