By Marc Jones LONDON (Reuters) - A second day of grim German data and expectations for a cut in the International Monetary Fund's growth forecasts spooked European assets on Tuesday, as the recent spell of global financial market volatility continued.
Wall Street futures prices pointed to a fifth day of modest falls in six for U.S. markets ahead of this week's start of third quarter earnings season, likely to be dominated by the potential impact of the recent surge in the dollar. (N)
A day after German industrial orders saw their biggest monthly drop since the height of the global financial crisis in 2009, its industrial output figures for August plunged by 4.0 percent in the worst fall in more than five years.
"Industrial production is currently going through a weak phase," Germany's Economy Ministry said in a statement. "All in all, one should expect weak production for the third quarter as a whole."
The worrying outlook saw European bourses <0#.INDEXE> jolt lower, led by a 0.8 percent drop on Germany's Dax (GDAXI) which is heavily exposed to global growth via firms like Siemens and Volkswagen and has now lost 7.5 percent in the last three weeks.
London (FTSE), Paris (FCHI), Milan (FTMIB) and Madrid (IBEX) took sharp tumbles too, while Italian, Spanish and French government bonds yields rose amid doubts about what a slowing Germany would mean for their more fragile economies.
It also fits with global worries. Apart from the United States, indicators of world growth have slipped sharply over the past few months as unrest in Ukraine, the Middle East and parts of Asia have all taken a toll.
"Over the summer, there has been quite an apparent divergence in the global growth story," said Kerry Craig, a global markets strategist at J.P. Morgan.
"What we are seeing is quite an ugly and uneven recovery. Growth in euro zone has stalled ... And then you have to contrast that with what is going on in the U.S. where the labor market continues to tighten faster than the Fed has predicted."
YEN EFFECTS
The IMF was about to publish its latest growth forecasts. The last set in April predicted global growth would strengthen to 3.6 percent this year and 3.9 percent in 2015 but they are expected to be pruned back again this time.
In contrast with the broader weakness in stocks, the mining sector got a rare boost as Rio Tinto (L:RIO) shares jumped after it rejected a merger approach from smaller rival Glencore (L:GLEN) to create $160 billion industry giant.
But the pan European FTSEurofirst (FTEU3) was still down almost 1 percent following the poor German data, while the euro <EUR=> dipped back below $1.26 against the dollar [FRX/].
For once, though, it was not one-way traffic for the U.S. currency, which struggles against the yen <JPY=> after Japan's Prime Minister Shinzo Abe flagged the negatives as well as positives of a weaker yen.
Bank of Japan Governor Haruhiko Kuroda also backed the bank to hit its 2 percent inflation goal without additional stimulus.
That resulted in a choppy session, and after going as high as 109.25 yen in Asia, the dollar was back down at 108.56 yen ahead of U.S. trading. [FRX/]
"Kuroda's comments suggest the BoJ is unlikely to ease policy anytime soon. So we are seeing some profit taking in long dollar/short yen positions," said Yujiro Goto, currency strategist at Nomura.
COMMODITIES CONSOLIDATE
MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) had ended up about 0.4 percent after wobbling between positive and negative territory, though the higher yen meant Tokyo's Nikkei (N225) ended the day firmly in the red.
The dollar's pause also helped minimize the impact of weaker global growth signals on recently slumping commodity prices.
Brent oil was just a fraction lower in London at $92.50 a barrel alongside growth-attuned copper , while gold <XAU=> held above $1,200 an ounce after sinking to a 15-month low on Monday. [GOL/][O/R][MET/L]
The Reserve Bank of Australia had earlier held its cash rate steady at 2.5 percent at its regular policy review, and said that its currency remains high by historical standards.
The Australian dollar erased earlier gains and slipped about 0.3 percent to $0.8738 <AUD=D4>, moving back toward Friday's low of $0.8642 which was its weakest level since July 2010.
(Editing by Catherine Evans)