By Marc Jones
LONDON (Reuters) - European shares fell for the third day running on Wednesday and the euro came under fresh pressure along with Spanish and Italian bonds as economic anxiety was compounded by stuttering progress in the euro zone's battle against its debt crisis.
After rallying between June and September, major markets from equities to commodities have traded more cautiously in recent weeks as the effect of central bank support has given way to renewed growth and debt concerns.
In its semi-annual check on the world's financial health, the International Monetary Fund summed up the fears, saying the euro zone's crisis was an increasing threat to global financial stability and that confidence was "very fragile".
There was also a warning that the plodding progress in the euro zone meant European banks were likely to offload $2.8 trillion in assets over the next two years to cut their risk exposure, a $200 billion increase on its last forecast.
The Euro STOXX 50 index of European bluechip firms, which has lost over 2 percent in the last week, was down 0.5 percent at 2,461.74 points by 1015 GMT as it, like the euro, sagged on the IMF's comments.
London's FTSE, Frankfurt's DAX and France's CAC were all down by mid-morning. The MSCI index of global shares slipped 0.3 percent after Japanese stocks slid 2 percent to a two-month low in Asian trading.
Daiwa securities economist Tobias Blattner noted that the IMF cut its global growth forecasts for the second time since April on Tuesday, undermining the effect of stimulus measures announced by the U.S. Federal Reserve, European Central Bank and other authorities.
"You see positive sentiment is slowly but surely fading away," he said, citing uncertainty in the United States over the "fiscal cliff" - government spending cuts and tax rises due to take effect early in 2013 unless Republicans and Democrats can agree alternative measures.
"The risks are probably the biggest in the U.S. because you don't know the outcome of the presidential election which obviously determines whether or not you can overcome the fiscal cliff. And you add to that the uncertainty in the euro zone," said Blattner.
With little sign of progress from the latest meeting of euro zone finance ministers in Luxembourg, markets largely brushed off forecast-beating industrial production data from France and Italy, on top of Greece's first rise in industrial output in more than four years.
U.S. stock index futures pointed to a flat opening on Wall Street after aluminium major Alcoa began the U.S. earnings season on Tuesday with warnings of slowing demand.
In the currency markets, the dollar firmed as investors looked to safe-haven assets. The euro, closely linked to the region's debt troubles, slipped 0.2 percent to its lowest level since the start of the month.
Spanish bond yields were also rising as Madrid keeps markets guessing over whether it will request an international bailout. Violent protests against German Chancellor Angela Merkel when she visited Greece on Tuesday underlined how far the debt crisis is from resolution.
Italy's borrowing costs edged up at a sale of one-year debt while Germany drew strong demand at its auction of five-year bonds.
"Yields went up at the Italian auction, and everyone has their eyes on these. It's an indication that risk aversion is on the rise again in Europe," said David Thebault, head of quantitative sales trading, at Global Equities. � Following three-straight days of losses gold steadied at $1,762.62 an ounce.
Growth-sensitive commodities such as copper and aluminium and currencies like the Australian dollar were again under pressure, while the retreat from riskier assets boosted Japanese government bonds (JGB) and U.S. Treasuries.
Brent crude oil rose above $114 a barrel as shelling along the Turkey-Syria border, hostility between Iran and the West, and an impending Israeli election made Middle East supply worries outweigh those over global growth.
"The nuclear dispute with Iran is going to be an election issue in Israel, and this might cause the price to rise in coming weeks, or at least support it," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
(Additional reporting by Alice Baghdjian; editing by David Stamp)