By Richard Hubbard
LONDON (Reuters) - World shares, the euro and oil prices fell on Wednesday as weak data highlighted the headwinds facing the global economy, though hopes of more monetary stimulus from central banks limited the falls.
Strong demand for safe-haven German debt at a bond auction also signalled that investors remain worried over the implementation of recently agreed measures to help ease the euro zone's debt crisis, sending yields on Spanish and Italian debt higher.
Activity was subdued, however, with U.S. markets closed for the Independence Day holiday and ahead of policy decisions from the European
Central Bank and Bank of England on Thursday.
In the quiet market Germany found it easy to sell 3.3 billion euros of 5-year government bonds, receiving bids for 2.7 times the amount on offer at an average yield of just 0.52 percent.
"What we are seeing is that ... this demand for safety remains intact," said Michael Leister, rate strategist at DZ Bank.
After the auction 10-year Spanish bond yields rose 11 basis points to 6.38 percent, and the Italian equivalent rose 12 basis points to 5.76 percent.
The euro shed 0.2 percent against the dollar to hit $1.2565, but was still holding above Tuesday's low of $1.2559.
Traders said the euro was under pressure from widespread expectations that the ECB is about to cut interest rates.
The single currency fell to an 11-1/2 year low against the higher-yielding Swedish crown when Sweden's central bank kept its key interest rates unchanged.
European share markets ended three days of gains, with the FTSEurofirst 300 index of top European shares falling 0.3 percent to 1,042.94 points, retreating from a two-month high set on Tuesday.
European equity markets began their latest rally on Friday, having fallen sharply for much of June, after European Union leaders agreed on new measures to support the region's banks and address funding problems facing Spain at a summit meeting.
Investors have also been encouraged back into riskier asset markets by the belief that the ECB will cut rates on Thursday and that it may also inject fresh funds to help boost the region's struggling economy.
A Reuters poll of economists showed a majority of economists expect the ECB to cut its main rate 25 basis points to 0.75 percent on Thursday, while money market traders are evenly split on whether the central bank will cut the deposit rate, a separate survey showed.
"Investors will also want to see if the ECB President will highlight downside risks to growth and inflation, which will set the ground for more easing," said Paul Robson, currency strategist at RBS.
The Bank of England is expected to launch a third round of monetary stimulus at its meeting.
Data releases from across the globe continue to add weight to the view that the world economy is slowing down.
An index of activity among private Chinese service sector firms showed them growing at their slowest rate in 10 months in June as new order growth cooled, though the index has posted 43 months of consistent expansion.
Another survey showed Germany's services sector unexpectedly stagnated in June, ending an eight-month period of expansion as new order intake dropped.
A composite Purchasing Managers' Index (PMI) for the whole euro area, which surveyed thousands of companies, was revised up in June, but has been below the 50 mark that separates growth from contraction for nine of the last 10 months.
"Even Germany looks to have fallen into a renewed decline, though only a very modest drop in output is signalled. The pace of downturns in other major euro member states is far more worrying," said Chris Williamson, chief economist at data provider Markit.
He said output in Italy probably declined 1 percent in the second quarter, with steep downturns also on the cards in Spain and France.
The prospect of further central bank monetary easing has supported the prices of gold and other commodities this week, but the increasingly grim news about the health of the world economy has sparked a retreat.
"We believe that the euro zone crisis, the U.S. fiscal cliff, and the possibility of a hard landing in China will give the markets plenty to worry about and will keep risk appetite low and constrained," Societe Generale said.
The bank has lowered its price outlook for Brent crude by $5 a barrel to $100.
Brent crude, which had also been gaining on rising tension over Iran's nuclear programme, was 90 cents lower at $99.80 per barrel after jumping more than 3 percent on Tuesday.
Brent crude was trading as low as $88.49 on June 22.
Spot gold was little changed at $1,616.05 an ounce, after rising more than 4 percent since last Friday. It hit a two-week high of $1,624.70 on Tuesday.
The gold market is likely to remain steady ahead of the release of U.S. monthly employment data on Friday, which may encourage talk the
Federal Reserve will join with its European counterparts in taking additional policy easing measures.
The U.S. monthly jobs report is expected to show 90,000 workers were added to non-farm payrolls in June and the unemployment rate held at 8.2 percent.
(Additional reporting by Anirban Nag; Editing by Will Waterman)