* World stocks fall, gold at new record
* Global service sector growth slows
* Oil prices down on stockpile buildup, economy (Updates prices, adds comments)
By Rodrigo Campos
NEW YORK, Aug 3 (Reuters) - Stocks on major markets hit their lowest level this year and gold prices posted a new high on Wednesday as investors fretted about government spending cuts at a time of slowing global economic growth.
But the S&P 500 <.SPX> erased losses after hitting its lowest level since early December, following seven days of declines. Other U.S. indexes also edged into positive territory.
Data showed U.S. service sector growth slowed in July, just days after manufacturing data pointed to a slowing expansion. For details see [ID:nN1E77208M]
Investors sought the safety of long-term U.S. bonds and precious metals, while a move to curb the Swiss franc's recent strength was seen working only temporarily. Recession fears have pushed benchmark U.S. bond yields to levels not seen since early November.
Wednesday's weak service sector data from Asia, Europe and the United States followed evidence of slowing growth in manufacturing in many countries on Monday. [ID:nL6E7J30NB]
"It's not just (the U.S.), it's the whole world. I'm having trouble now remembering the last good data point," said Uri Landesman, president of Platinum Partners in New York.
Investors worry that fiscal cutbacks in Europe and the United States at a time of stagnating global output endanger an already flagging global recovery.
Gold hit a record for a second straight day, driven by deepening fears over the spread of the European debt crisis and its impact on regional growth, while data showed a number of central banks bought the precious metal in June.
Spot gold
The U.S. 30-year bond
While the flight to safety caused U.S. bonds to rise, markets gave little respite to Italian bonds as the escalating debt crisis pushed the region's largest government bond market toward a tipping point. [GVD/EUR]
The Italian 10-year benchmark bond price edged up but yields were still above 6 percent.
With 40 minutes of trading left in New York, the Dow Jones industrial average <.DJI> was up 35.42 points, or 0.30 percent, at 11,902.04. The Standard & Poor's 500 Index <.SPX> was up 5.98 points, or 0.48 percent, at 1,260.03. The Nasdaq Composite Index <.IXIC> was up 25.16 points, or 0.94 percent, at 2,694.40.
Equities erased most of their losses after two former top officials at the Federal Reserve conditionally endorsed a further round of bond buying by the U.S. central bank to spur a flagging economic recovery, according to the Wall Street Journal. [ID:nN1E7721BY].
The previous round, known as QE2, was seen as a main driver of a spike in equity and commodity prices in late 2010 and the first half of this year.
MSCI's world equity index <.MIWD00000PUS> fell 1 percent and was down for a sixth straight session, on track to close at its weakest since December.
European stocks <.FTEU3> fell 2 percent to their lowest
closing level in almost a year and U.S. dollar-denominated
Nikkei futures
Energy and industrial metals prices fell as the economic
view darkened. Brent
Data showing a build-up in U.S. oil stockpiles pressured crude oil prices further.
In foreign exchange markets, the Swiss franc retreated from record highs after the Swiss National Bank unexpectedly cut interest rates to counter its rise. Declines are seen temporary, though, as global growth concerns drive investors toward the perceived safety of the Swiss currency.
"I am skeptical that the SNB actions will have more than a transitory 'psychological' negative impact on the Swissie if we remain in a risk-averse world," said Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York.
"With the U.S. dollar not playing its traditional role as flight-to-quality vehicle, the flight from a wide array of risky assets is being funneled and concentrated into very few alternatives," he said.
The euro hit a record low of 1.0794 francs on trading platform EBS just before the SNB's move. It last traded at 1.0994 francs
The SNB said the franc was "massively overvalued," keeping alive the prospect of intervention. [ID:nL6E7J30C0]
That also sharpened the focus on Japanese authorities who warned again they were uncomfortable with the rising yen. [ID:nL3E7J24NW] (Additional reporting by Chuck Mikolajczak, Emily Flitter, Wanfeng Zhou and Caroline Valetkevitch; Editing by Dan Grebler)