Gloomy data hit stocks as rate cuts eyed

By Ian Chua

LONDON (Reuters) - A darkening outlook for the euro zone economy clipped global stocks on Wednesday and helped send the 30-year euro zone government bond yield to an historic low as investors looked for aggressive interest rate cuts in Europe this week.

Wall Street was set to track European bourses lower with U.S. stock index futures all in the red.

The euro stayed on the back foot a day before the European Central Bank, Bank of England and Sweden's Riksbank are all widely expected to cut borrowing costs.

Supporting those expectations, economic reports on Wednesday showed the euro zone's services economy fell deeper into recession in November than initially thought and inflationary pressures eased.

"This is a horrible survey across the board, showing that the euro zone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets," said Howard Archer, economist at IHS Global Insight.

A separate report revealed that retail sales in the region dropped by a worse-than-expected 0.8 percent in October from the previous month.

The FTSEurofirst 300 .FTEU3 index of top European shares fell 0.6 percent with Britain's FTSE 100 index .FTSE down 0.1 percent and Germany's DAX .GDAXI shedding 1.0 percent.

MSCI world equity index .MIWD00000PUS eased 0.2 percent.

Earlier, Japan's Nikkei .N225 managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday, and MSCI's index of other Asian stock markets .MIAPJ0000PUS put on just 0.4 percent.

The news flow in Asia was negative too with Australia's economy growing at its slowest pace in eight years in the third quarter.

Thailand slashed rates by 100 basis points and South Korea took steps to help local banks through a cash crunch.

Central banks worldwide are cutting rates to fight recession. They are also considering more measures to stabilize financial markets and restore battered consumer and investor confidence, including help for struggling U.S. auto makers.

The ECB meets on Thursday and most economists expect an interest rate cut of 50 basis points, while the Bank of England is forecast to cut rates by an aggressive 100 basis points.

Sweden's central bank is likely to slash rates by a record 100 basis points, or possibly more, on Thursday when it announces the result of its meeting, which it brought forward by almost two weeks.

EURO PRESSURED AS ECB CUT EYED