* Euro zone recovery doubts add to Fed policy uncertainty
* World shares slide 1.0 pct, European shares 1.2 pct lower
* U.S. stocks signal weaker open on Wall St
* Euro falls under $1.32 to six week low
* Commodities join selloff, safe haven assets gain
By Richard Hubbard
LONDON, Feb 21 (Reuters) - Worries about Europe's economic
health sent shares, commodities and the single currency lower on
Thursday, extending losses caused by growing uncertainty over
the U.S. Federal Reserve's future monetary policy.
The combination of factors put the MSCI world equity index
on course for its biggest daily loss of the
year, sent oil sliding towards $114 a barrel, and saw the dollar
hit a three-month high against a basket of major currencies
U.S. stock index futures pointed to a lower start on Wall
Street when it reopens, with the S&P 500 index poised to
follow its biggest daily fall in three months on Wednesday with
The latest bout of selling was triggered by surprisingly
weak euro zone Purchasing Managers Index (PMI) data for February
which dashed hopes of an early recovery for the recession-hit
Economists had expected the PMIs, a leading indicator of
economic activity based on surveys of businesses, to add to
other tentative signs of a recovery. But instead they pointed to
a sizeable first-quarter contraction of up to 0.3 percent.
"The expectation was the trend of improvement for the euro
zone as a whole would continue and it hasn't, so that is a
disappointment," said BNP Paribas economist Ken Wattret.
The euro tumbled to a fresh six-week low below $1.32
on the news, having already suffered at the hands of a resurgent
greenback following the signals from the U.S. Federal Reserve on
Wednesday that it was considering an end to monetary stimulus.
Signs that Fed policymakers were becoming increasingly
reluctant to continue aggressive monetary easing, revealed in
the minutes of the last policy meeting, had sparked a worldwide
selloff in riskier asset markets.
Europe's Eurofirst 300 index shed 1.2 percent,
close to its biggest daily loss of the year so far, while
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were as much as 1.8 percent lower.
Emerging stocks were at their lowest levels since December
as signs of a monetary tightening in China added to the growth
and Fed policy concerns; traders speculated on a shift in
monetary policy after China's central bank conducted a record
high liquidity draining operation from the banking system.
A statement by outgoing premier Wen Jiabao expressing
renewed concern about housing prices has also fuelled concerns
that monetary policy may soon tighten.
SAFETY PLAYS WELL
In the fixed income market, worries about the growth outlook
in Europe and further Fed bond buying sent safe-haven German
debt to some of the highest levels seen for a month.
The main Bund futures contract was 80 ticks up at
143.20, reversing the fall seen on Wednesday and supported by
the approach of an Italian general election this weekend.
Confidence in Italy has been shaken in the run-up to the
voting, after a strong campaign by former prime minister Silvio
Berlusconi that has opened up the three-way race with outgoing
premier Mario Monti and centre-left leader Pier Luigi Bersani.
"Investors are becoming more and more cautious ahead of the
weekend ... and altogether people decided here to pull the
trigger and go risk-off," said Christian Lenk, a fixed income
strategist at DZ Bank.
Italian 10-year yields were 4.5 basis points
higher on the day at 4.47 percent, while Milan's blue-chip share
index was down 3 percent, underperforming the already
weak markets across Europe.
The dollar, another safety play, followed up its big gains
on Wednesday adding a further 0.35 percent on an index value
that includes most major currencies, although it slipped
0.5 percent against the yen to 93.
The Markit composite PMI for the euro zone, which combines
both services and manufacturing surveys, fell to 47.3 in
February from 48.6. It had been expected to rise to 49.0.
The data also showed a growing gap between Germany and
France - the two biggest economies - which may have implications
for the European Central Bank's monetary policy.
The survey found firms in Germany are enjoying a healthy
rate of growth, while French service sector companies are in the
midst of their worst slump since the financial crisis was at a
peak in early 2009.
"The theme is still the very substantial divergence between
France and Germany and that is going continue to be the case for
much of the year," said Wattret of BNP Paribas.
"On the margins this is going to resonate with the dovish
tone from the ECB at its last meeting, but I think the real
swing factor for the ECB will be the exchange rate factor and
the tightening impact it is having."
ECB Bank President Mario Draghi has said the euro's exchange
rate was important for growth and inflation and the bank is
already monitoring the economic impact of the euro's strength.
In commodity markets, the prospect of weakening demand from
China, a possible early end to the Fed's policy of quantitative
easing and the stronger dollar sent all markets lower.
London copper struck its lowest in nearly two
months, at $7,863.50 a tonne, while oil dropped below
$114.50 a barrel for the first time this month, having seen its
biggest daily fall of the year on Wednesday.
Growth-attuned precious metal platinum fell 3 percent
to hit a five-week low. Traditional safe haven gold
popped higher, to $1,569.70 an ounce, after the Fed minutes had
pushed it to a seven-month low.
"Long-position holders have been looking to sell for
profit-taking," said Yusuke Seta, a commodity sales manager at
Newedge Japan. "I guess this is a good time to sell."