By Caroline Valetkevitch
NEW YORK (Reuters) - Global stocks fell more than 1 percent and Brent crude hit its lowest since December 2010 o n Thursday following data showing Chinese, European and U.S. manufacturing activity had slowed further.
The weak data came just a day after the Federal Reserve extended its monetary stimulus program aimed at boosting the U.S. economy.
U.S. stocks added to losses after Goldman Sachs recommended shorting the benchmark S&P 500 index. All three major U.S. indexes were on track for their worst day since June 1.
Gold fell and was on track for its biggest decline in more than three months, hurt by global economic worries, while the U.S. dollar rose against the euro and yen as the Fed's move disappointed investors who had hoped for a more aggressive policy.
Business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed U.S. factory growth, surveys showed.
The data clouded the outlook for the world economy and compounded fears that Europe's debt crisis, coupled with slower growth in the United States and Asia, would hurt economies worldwide.
"Markets are worried about the slowdown, not only in U.S. figures but all around the world," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida. "The (stock) market was extremely overbought coming into this week, and the news gave it an excuse to sell off."
The Dow Jones industrial average was down 214.41 points, or 1.67 percent, at 12,609.98. The Standard & Poor's 500 Index was down 25.94 points, or 1.91 percent, at 1,329.75. The Nasdaq Composite Index was down 56.46 points, or 1.93 percent, at 2,873.99.
World stocks, as measured by MSCI's global equity index, declined 1.9 percent and European shares ended down 0.5 percent.
On Wednesday, the Fed chose to extend its bond-buying program, dubbed "Operation Twist," rather than implement more extensive stimulus, as some had hoped.
The U.S. central bank made its decision after lowering forecasts for growth and employment in the world's largest economy in 2012 and 2013. It said it would consider more stimulus measures if the situation worsened.
In Europe, preliminary manufacturing and service sector data across the 17-nation euro area showed the downturn in the region was becoming entrenched as falling new orders and rising unemployment hit business confidence.
The survey data showed that Germany's private sector shrank in June for the second consecutive month, with manufacturing activity hitting a three-year low.
A similar survey of private sector activity in China, compiled by HSBC, found its factory sector had shrunk for an eighth straight month in June on weaker demand for exports.
Economic growth in the world's most populous nation is widely expected to have slowed for a sixth consecutive quarter in April through June as the country feels the impact of the euro area debt crisis and property controls weigh on domestic demand.
In U.S. stocks trading, energy and materials shares led declines, with the S&P energy sector index down 3.7 percent and the materials index down 3.2 percent.
In the oil market, Brent crude fell $2.85 from Wednesday's settlement to $89.84 a barrel, and hit its lowest level since December 2010. NYMEX crude for August delivery closed at $78.20, down $3.25, or 4 percent, marking the lowest settlement for front-month U.S. crude since October 4, 2011.
The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.7 percent to 82.154.
Spot gold was down 2 percent at $1,574.40 an ounce.
"The manufacturing data was deflationary. Gold selling accelerated following yesterday's Fed announcement, which was modestly disappointing for those traders who had bought gold in anticipation of more help from the Fed," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a broker-dealer with $54 billion in assets.
SPANISH BOND YIELDS DOWN
Spanish government bond yields fell sharply as Madrid tapped the markets with a sale of medium-term debt, although at an increased cost.
Spain sold 2.2 billion euros of two-, three- and five-year bonds, slightly more than the relatively small stated target amount, but it relied on its domestic banks to absorb the issuance.
Ten-year Spanish government bond yields fell 15 basis points on Thursday to 6.62 percent, having risen to almost 7.30 percent last week.
U.S. bond yields were down as well. Benchmark 10-year Treasuries were last up 9/32 in price to yield 1.62 percent, down from 1.65 percent late on Wednesday.
(Additional reporting by Richard Hubbard, Ana Nicolaci da Costa and Kristen Donovan in London and Frank Tang and Angela Moon in New York; Editing by Bernadette Baum and Dan Grebler)