GLOBAL MARKETS-European economy gloom hits stocks; oil steady

(Updates, adds Wall Street outlook)

By Jeremy Gaunt, European Investment Correspondent

LONDON, July 24 (Reuters) - Gloomy economic news, including the sharpest decline in German business sentiment since 9/11 sent European equities down on Thursday, overshadowing steady oil below $125 a barrel and positive financial sector earnings.

Wall Street also looked set for a weak start.

The euro fell against the dollar and euro zone government bond prices jumped to break a six-session losing streak after the Munich-based Ifo economic research institute said German corporate sentiment declined by more than expected in July to its lowest level in nearly three years.

The monthly drop in the Ifo index was the steepest since the Sept. 11, 2001 suicide attacks on the United States, and took the index to its lowest level since September 2005.

It was compounded by the RBS/Markit Eurozone Purchasing Managers Index for services companies which fell to a five-year low and by euro zone manufacturing activity remaining in negative territory.

"It's really bad," said Gilles Moec at Bank of America.

The pan-European FTSEurofirst 300 was down close to 1.2 percent.