Slowing private sector growth in China and Europe raised new concerns the global economic recovery is at risk, while the United States and other big oil consuming nations announced a surprise plan to bring down oil prices and kick-start growth.
The euro zone's private sector grew only modestly in June and would have shrunk without the support of Germany and France while China's factory sector barely expanded, purchasing managers' indexes (PMIs) showed on Thursday.
In a bid to boost the recovery, the 28-member International Energy Agency said on Thursday it would release 60 million barrels of oil on the global market, with the United States accounting for half of the total.
The IEA minced no words in its intentions: "Greater tightness in the oil market threatens to undermine the fragile global economic recovery," it said.
Adding to the gloom on the economic outlook, new U.S. claims for unemployment benefit climbed more than expected last week, pointing to a weakening labor market in the world's biggest economy and renewing expectations for a disappointing payrolls report for June. The government's jobs report will be released on July 8.
"Economic activity is losing momentum quite rapidly," said Marco Valli at UniCredit, "The pace of growth deceleration in May-June matches similar evidence in other industrialized countries," he said of the slowdown in Europe.
The IEA's announcement on efforts to drive down the price of oil came a day after the U.S. Federal Reserve said the pace of recovery in the world's largest economy was proceeding more slowly than it had expected, but pledged no new help for the economy once its bond purchase program expires this month.
"I think that psychologically it will have some impact in the short term," said Eugenio Aleman, a senior economist at Wells Fargo in Charlotte, North Carolina, who predicts a quick increase in consumer demand as fuel prices fall.
"But the price of oil is coming down anyway because of weakness all over the world," he said, adding that the oil release would be a one-time event.
Oil prices crashed to a four-month low after the IEA announcement, before modestly paring gains with Brent crude trading down 6 percent and U.S. crude down 4.7 percent. World stocks also slid, and the dollar and U.S. Treasuries debt prices rose as investors sought safe havens.
WORRIES IN EUROPE; CHINA SOFTENS
Also weighing on the outlook, Europe is trying to hammer out a second bailout for Greece and there are concerns that the sovereign debt crisis could spill over again to other countries on the euro zone's periphery.
Growth in the 17-nation bloc's dominant service sector was much slower in June than in recent months while manufacturers also eased off the accelerator as new orders declined for the first time in nearly two years, the Markit PMIs showed.
In China -- which has driven world growth -- the factory sector barely expanded in June, data showed, as policy tightening by the central bank to control inflation muffles a booming economy.
China's flash HSBC PMI, the earliest available indicator of the country's industrial activity, eased to 50.1 in June, a mere whisker above the 50-point level that separates expansion from contraction. Data compiler Markit said the reading was consistent with second-quarter economic growth of around 9.1-9.3 percent year-on-year, down from 9.7 in the first quarter.
"At this level, the PMI is still consistent with GDP growth of 8-9 percent," said Mark Williams, senior China economist at Capital Economics in London. "The size of the latest decline does ring alarm bells but there are still good reasons to be confident that China will achieve a soft landing."
Clear signs the global economy is cooling prompted analysts to trim their outlook for most of the world's major stock markets, a Reuters poll showed.
TIGHTER POLICY BITING IN ASIA
Signs of slowing in some of the world's most important economies are coinciding with the withdrawal of stimulus.
The Fed on Wednesday cut its forecasts for U.S. economic growth, but offered no hint of further monetary support, saying the recovery should gradually pick up heading into 2012.
The central bank confirmed it was ending its $600 billion bond-buying program as scheduled at the end of June, taking its total support to $2.3 trillion.
Adding to concerns about the end of the Fed's stimulus is the prospect of U.S. spending cuts sought by Republicans in Congress as their price for raising the U.S. debt ceiling.
The European Central Bank was the first of the big four central banks to hike interest rates in April and is expected to raise again next month in a battle to control inflation despite the stuttering recovery and the Greek debt crisis.
The Flash Markit Eurozone Services PMI fell to 54.2 in June from May's 56.0, its lowest level since December.
Still, it was the 22nd month the index, which measures the activities of companies ranging from banks to hotels, has been above the 50 mark that divides growth from contraction.
The flash manufacturing PMI fell to 52.0 from 54.6 in May, its lowest level since December 2009 while the composite PMI, a broader measure of the private sector which combines the services and manufacturing data, fell to 53.6 from 55.8.
The composite index is often used as a guide to growth and Markit said it was consistent with euro zone quarterly growth of 0.6 percent for the second quarter.
Economists polled by Reuters this month predicted growth of just 0.3 percent this quarter.
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