GLOBAL MARKETS-Fear of Greece euro exit sparks stocks sell-off

* China move on lending sparks slower growth fears, hits oil

* Signs of deeper recession in euro zone adds to worries

* Euro slips to four-month low; oil falls on demand outlook

* Government debt gains from safe-haven appeal

By Herbert Lash

NEW YORK, May 14 (Reuters) - Global stocks slid on Monday on worries Greece could leave the euro zone, while oil prices fell after a move by economic powerhouse China to prop up lending sparked fears its economy was weaker than has been thought.

Data pointing to a deeper European recession, along with growing unease about the Greek debt crisis, pushed European shares down nearly 2 percent to a 4-1/2-month closing low. Stocks on Wall Street touched a three-month low, while the euro hit a near four-month low against the dollar on Greek fears.

Government debt gained, pushing German yields to record lows, after coalition talks in Greece on Sunday faltered and increased the chance of mid-June election. President Karolos Papoulias summoned political parties to a third day of talks on Tuesday, but the Greek Socialist leader, Evangelos Venizelos, said he was not optimistic a new government could be formed.

The yield on U.S. Treasuries, which moves inversely to price, fell to the lowest level since early October, breaking decisively below 1.80 percent, a key resistance point.

The benchmark 10-year U.S. Treasury note was up 15/32 in price to yield 1.79 percent.

"Treasuries are higher as fears about new political realities in Germany and Greece, global growth and Spanish banks drive investors into safe-haven debt markets," said William O'Donnell, managing director and head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.

German Chancellor Angela Merkel's Christian Democrats suffered a crushing defeat on Sunday that could embolden the opposition left to step up attacks on her European austerity policies. Merkel said on Mon day the defeat was a bitter setback but would not alter her view on how to achieve growth.

Safe-haven currencies, such as the dollar and the Japanese yen, rose. Expectations are for the euro to continue to fall, driven by speculation over the implications of Greece's possible exit from the euro zone.

The Dow Jones industrial average was down 103.30 points, or 0.81 percent, at 12,717.30. The Standard & Poor's 500 Index was down 12.61 points, or 0.93 percent, at 1,340.78. The Nasdaq Composite Index was down 26.05 points, or 0.89 percent, at 2,907.77.

Compounding the picture for investors was data that showed output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signaling the bloc's recession may not be as mild as policymakers hope.

Industrial production in the 17 countries sharing the euro fell 0.3 percent from February, the EU's Eurostat statistics office said. Economists polled by Reuters had expected a 0.4 percent increase in March.

Signs of a struggling Chinese economy also weighed on investor sentiment. China, the world's second-biggest economy, cut bank reserve requirements on Su nday to free up an estimated 400 billion yuan ($63.5 billion) for lending in a bid to avert a sudden slowdown.

The FTSEurofirst 300 index of top European shares ended down 1.8 percent at 1,004.20, its lowest close since Dec. 30.

MSCI's measure of world stock markets fell 1.5 percent to 310.43.

German Bund futures rose as much as 92 ticks on the day to an all-time high of 143.69, while German 10-year yields plumbed a record low of 1.434 percent.

Oil fell sharply to extend recent heavy losses as the mounting political uncertainty over Greece and the prospect for slower growth in China, the world's second-biggest energy consumer, weighed on the demand outlook for energy.

Brent crude fell 69 cents to settle at $111.57 a barrel. U.S. crude fell $1.35 to settle at $94.78 a barrel.

Prices for Brent crude have fallen 6.2 percent and for U.S. crude 8.4 percent in the two weeks ended Friday.

Gold prices also fell as the political deadlock in Greece fueled risk aversion and put pressure on the euro.

Spot gold prices lost $15.83 to trade at $1,563.60 an ounce, after earlier hitting a session low of $1,556.61 an ounce, its lowest since Dec. 30.

The euro fell 0.57 percent to $1.2841. The U.S. dollar index was up 0.43 percent at 80.611, and against the Japanese yen, the dollar was down 0.10 percent at 79.84 yen.

Analysts said the euro could hit the 2012 low of $1.2623 in coming weeks, with some forecasting a break toward $1.20.