(Reuters) - China's slowdown worsened in May as its factories saw a further deterioration in demand at home and abroad, dealing a new blow to a global economy struggling with a sharp downturn in Europe and a faltering recovery in the United States.
The darkening outlook was underlined by data showing the fourth monthly decline this year in exports from South Korea, the first major economy to report May numbers, as shipments to the United States, Europe and China all fell.
Equities, the euro and growth-linked currencies all fell after Friday's gloomy data, which followed reports on Thursday showing India's growth at its weakest in nine years.
Manufacturing surveys from Europe later are not expected to offer much comfort, while investors' jitters over the key U.S. non-farm payrolls report, due at 1230 GMT, have been rising since a separate report on Thursday showed U.S. private employers created fewer jobs than expected last month.
"I don't think Friday's numbers are going to be any better. It's been a dismal week so far, and we haven't hit bottom," said Jim Ritterbusch, president at oil trading advisory firm Ritterbusch & Associates.
Declines in two gauges of China's manufacturing sector were particularly worrying for investors looking to the world's second biggest economy - the main engine of global growth in recent years - to pick up the slack created by Europe's debt crisis and the sluggish U.S. economy.
China's annual economic growth is expected by analysts to fall to 7.9 percent in the second quarter, the first dip below 8 percent since 2009. That could pile pressure on authorities to take further policy action to support growth.
"What's really worrying is new orders have started to shrink and inventories have started to build up at an unusually fast pace," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
"Growth in Q2 is likely to slow, probably below 7.5 percent year-on-year. That puts the annual growth target at risk and the risks continue to increase because the external environment is weakening."
China's official purchasing managers' index - covering China's biggest, mainly state-backed firms - fell more than expected to 50.4 in May, the weakest reading this year and down from April's 13-month high, with output at its lowest since November 2011.
The separate HSBC China manufacturing PMI, tracking smaller private sector firms, retreated to 48.4 from 49.3 in April - its seventh straight month below the 50-mark that demarcates expansion from contraction - with the employment sub-index falling to 48.1, its lowest level since March 2009.
The euro fell to a 23-month low after the data and the Australian dollar, highly sensitive to expectations of Chinese demand for commodities, hit an eight-month low. Japanese shares were heading for a ninth straight week of losses, matching its longest such run in 20 years. <MKTS/GLOB>
China's yuan was little changed, after suffering its biggest monthly drop on record in May.
A slower growth outlook for China added to concerns facing fellow Asian industrial powerhouse South Korea, which has seen Europe's wrenching debt crisis sap demand for its exports.
Data released on Friday showed that exports fell 0.4 percent in May from a year ago, less than expected in a Reuters poll of economists, as demand in the Middle East and Latin America was offset by sharp falls in the United States, Europe and China.
"Given the prevailing view that the euro zone fiscal crisis won't be solved in the short term, we are concerned that exports to China will remain weak for some time," Deputy Trade Minister Han Jin-hyun said at a briefing after the data was released.
The weak export data prompted investment banks to warn that the South Korean government's forecast of 3.7 percent economic growth this year looked to be overly optimistic.
"Absent a vigorous export recovery, 2012 is shaping up as a year of sub-trend growth," said ING economist Tim Condon.
Taiwan's HSBC May PMI showed a second straight month of slowing expansion, with a reading of 50.5 compared with 51.2 in April.
India's manufacturing sector held up better, with a survey showing factories kept up a steady rate of expansion in May, with fast-rising output evened out by slowing growth of domestic order books.
The HSBC manufacturing PMI, compiled by Markit, eased marginally to 54.8 in May from 54.9 in April. It has stayed above the 50 mark for a little over three years.
While the survey indicated moderate growth in India's dominant manufacturing sector, question marks remain about the underlying weakness in the wider economy.
Official data on Thursday showed India's economy grew 5.3 percent in the quarter to March, the slowest pace in nine years.
Among the data due from Europe later are PMI reports for Italy, France, Germany and the euro zone as a whole, with polls forecasting all to remain deep in contractionary territory.
Economists forecast the U.S. employment report for May to show non-farm payrolls increased 150,000, up from a paltry 115,000 in April.
Investors were alarmed by a report from payrolls processor ADP showing private employers created 133,000 jobs in May, only a slight rise from April's tepid increase of 113,000 and below economists' expectations for a gain of 148,000.
Reporting by Nick Edwards and Lucy Hornby in Beijing, Se Young Le and Choonsik Yoo ini Seoul, Sumanta Dey in Bangalore, Chikako Mogi in Tokyo, Luke Pachymuthu in Singapore and Lucia Mutikani in Washington; Editing by Jeremy Laurence