Growth worries grip world's stock, oil markets

European stock markets fell for a second day on Wednesday, pushing world share indices back toward their lowest in six months as concern mounts over global economic growth.

New York markets were set to open flat to higher and currency markets were mixed, with attention turning to Federal Reserve minutes due at the end of the U.S. business day. DJc1 SPc1

But data and forecasts from China, Spain and Germany all supported the picture painted by the International Monetary Fund on Tuesday: a world economy struggling to end a cycle of low growth and financial trauma it has been stuck in since 2008.

The FTSE Eurofirst index of 300 leading European companies was down 0.8 percent at 1,323.66. Japan's Nikkei index .N225lost 1.2 percent and Asian shares outside Japan fell by a full percentage point. .MIAPJ0000PUS

"The mood is darkening rapidly," said Kit Juckes, a currency strategist at Societe Generale in London. "I'm not sure we should read too much into spot forecasts, but the suffocation of the IMF's optimism is pretty striking. Within the G7, 2015 forecasts have been cut in Germany, France, Italy and Japan."

A flood of new dollars printed by the U.S. Federal Reserve has allowed stock markets to ignore shaky economic prospects for much of the developed world over the past three years.

But the Fed is set to end its bond-buying this month, and the outlook for the Japanese, Chinese and European economies is less than optimistic. Prices of stocks and other more growth-dependent assets have fallen accordingly since mid-August.

Figures out of Germany this week have even called into question growth in the euro zone's biggest and so far most robust economy.

The losses in Europe and Asia pushed the MSCI index of world shares close to its lowest since mid-April .MIWD00000PUS. Oil prices reached their lowest in more than two years.

"It's concerns over global growth that are weighing on the equity markets, particularly prior to earnings season," James Butterfill, global equity strategist at Coutts, said.

"If you look at Europe, there's very weak macroeconomic data. There's weak data coming out of China as well, so it does suggest slower growth."

OIL LOW

While no-one expects a full U-turn in U.S. monetary policy, the prospect of stimulus from other sources is occupying much of investors' attention.

Even in the face of poor services sector data, Chinese markets bucked the trend, with shares in Shanghai .SSEC up 0.5 percent, the product in part of expectations of further stimulus from Beijing.

The protracted slide in oil prices should also be a windfall for consumer spending power, as well as a force for disinflation in much of the developed world.

That has been a boon for sovereign bonds as investors wager the outlook for slowing inflation will put off the day when U.S. interest rates might rise.

"There are a lot of worries about the macro picture, especially in the euro zone, and that is benefiting the bond market," said Jean-Francois Robin, head of strategy at Natixis. "We are back to a traditional correlation when the equity market is going down, the bond market is going up."

Another question, before the minutes from the Fed's latest meeting, is whether the dollar's gains since May will lead the Fed to raise rates more slowly over the next couple of years.

The dollar has gained more than 10 percent against the euro since early May and around 8.5 percent against a basket of currencies .DXY. That should hold down the price of imports and slow U.S. inflation, and it may make U.S. policymakers reluctant to boost the dollar further by raising interest rates.

The dollar index is down almost 1 percent this week, although it looked steadier in Europe on Wednesday. It hovered at $1.2655 against the euro EUR=, after falling as low as $1.2683 overnight.