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GLOBAL MARKETS-Downbeat PMI data pushes global shares lower

Nigel Stephenson
Thursday, 20 Feb 2014 | 4:37 AM ET

* Weak French, Chinese data hits stock markets

* Euro falls against dollar after PMI data, yen gains

* Ukraine clashes hit emerging market stocks

LONDON, Feb 20 (Reuters) - Shares fell and the safe-haven yen rose on Thursday after surveys showing factory activity slowing in China and stuttering in Europe highlighted the fragility of the global economic recovery.

A contraction in Chinese manufacturing set the gloomy tone and this was reinforced by data showing the service sector in France shrank at its fastest pace in nine months.

An expected acceleration in activity across the whole euro zone failed to materialise. Markit's Composite Purchasing Managers' Index dipped but held just below January's 31-month high.

"The outcome was much weaker than expected and it clearly shows how business sentiment is failing to gain momentum as headwinds to growth are still well alive," said Annalisa Piazza, market economist at Newedge Strategy, after the French data.

Escalating conflict in the Ukrainian capital, Kiev, hit developing country stocks and MSCI's emerging market index fell more than 1 percent.

MSCI's world equity index, which tracks shares in 45 countries, was down 0.6 percent, a six-day low, having hit its highest in almost a month on Wednesday.

In Europe, the benchmark FTSEurofirst 300 index lost 0.8 percent, with mixed PMI data from Germany, the euro zone's powerhouse, barely lifting the mood.

"I think we're in for more sell-offs," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.

SAFE HAVENS

The yen, which traditionally gains at times of market turmoil, rose 0.5 percent against the dollar to trade at 101.77 to the greenback. The euro was down 0.2 percent at $1.3708.

The dollar had firmed overnight after minutes of the U.S. Federal Reserve's latest policy meeting showing the central bank would keep trimming its asset-purchase programme. The dollar index, which measures the greenback against a basket of currencies, was 0.2 percent higher at 80.281.

Yields on low-risk German government bonds and U.S. Treasuries fell.

Earlier, Asian stocks tumbled after the preliminary China Purchasing Managers' Index from HSBC/Markit for February fell to a seven-month low of 48.3 in February from January's final reading of 49.5. A reading below 50 denotes contraction.

The Lunar New Year festival, which began on Jan. 31 and covered early February, probably affected factory output as manufacturers shut up shop for the holiday.

"You have to expect Beijing to act if the economy slows down more from here, because they cannot proceed with their reform agenda without maintaining a certain level of growth," said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities.

MSCI's broadest index of Asia-Pacific shares outside Japan fell almost 1 percent. Japan's Nikkei stock average ended down 2.2 percent, its biggest daily percentage drop in two weeks.

On Wall Street on Wednesday, the Dow Jones industrial average, the Standard & Poor's 500 Index and the Nasdaq Composite Index all skidded after the Fed minutes were released.

Three Fed officials said on Wednesday said they believed the U.S. economy was gaining traction despite a recent slowdown caused by bad weather, allowing the central bank to stick to its plan to wind down bond-buying this year.

The yield on benchmark 10-year Treasury notes fell to 2.703 percent, compared with Wednesday's U.S. close of 2.734 percent.

In commodities markets, Brent crude slid below $110 a barrel on Thursday, dragged down by the data from China, the world's second largest oil consumer.

Spot gold ticked up to $1,314 an ounce.

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