By Natsuko Waki
LONDON, Aug 2 (Reuters) - World stocks hit a one-month low on Tuesday and the euro fell broadly as investor focus shifted back to weak global growth prospects and the euro zone debt crisis after a U.S. budget deal that will lead to spending cuts of over $2 trillion.
Sluggish U.S. and global manufacturing data on Monday added to concerns about the world economic recovery, while concerns that Spain and Italy will be the next victims of the euro zone crisis drove benchmark government bond yields to 14-year highs.
An 11th-hour deal to raise the U.S. debt ceiling cleared its biggest hurdle in the House of Representatives, staving off the prospect of a default. But fears persisted that Washington could still lose its triple-A credit rating.
Figures on Monday showing U.S. manufacturing grew at its slowest pace in two years in July prompted investors to unwind risky positions and buy safe-haven assets including German government bonds, the yen and Swiss franc.
"It looks like investors have just forgotten about the debt ceiling deal in Washington and instead are focusing on the economic data, which was clearly weaker than anticipated," said Bill McNamara, analyst at Charles Stanley.
"The uptrend is clearly over."
MSCI's world equity index fell 0.7 percent on the day, to its weakest since June 28. The benchmark index is almost flat since January.
European stocks hit a 10-month low while Italian shares fell to 27-month troughs.
"The fear of the market is that the world is going into recession again... and in the euro zone the peripheral markets are the ones that will suffer most," said Alessandro Giansanti, strategist at ING in Amsterdam.
Emerging stocks dropped 1.3 percent, while U.S.
stock futures were down around 0.4 percent
U.S. crude oil
The dollar rose 0.3 percent against a basket of major currencies while the euro fell 0.4 percent to $1.4197.
The U.S. currency lost 0.1 percent to 77.31 yen , having come within a few ticks of its record low on Monday. The yen's strength drew warnings from Japanese officials of possible action to stem its rise and nudged the Bank of Japan closer to a further easing in monetary policy .
The 10-year Spanish government bond yield rose to 6.47 percent, its highest since 1997, pushing its yield premium over benchmark German Bunds out to 403 bps.
The Italian 10-year BTP yield was up by a similar amount at 6.27 percent .
The two countries have been under increased pressure in recent weeks as markets feel the size of the euro zone's EFSF bailout fund is too small to protect larger fringe economies if contagion from the Greek crisis cannot be stopped.
Weakening global recovery momentum could also make it harder for peripheral countries to service their debt.
"The positive tone seems to have evaporated after the ISM figures yesterday ... and 6 percent was seen as a line in the sand for Italian yields and now that that's gone people don't want any risk apart from Germany," a euro zone bond trader said. (Additional reporting by Atul Prakash; Editing by Catherine Evans)