By Nigel Stephenson
LONDON (Reuters) - European shares followed Asian stocks lower on Thursday, hit by sharp falls on Wall Street the previous day, while German government bond yields hit one-month lows as investors sought shelter in low-risk debt.
The pan-European FTSEurofirst stocks index dropped 0.5 percent, led lower by financial shares, and is down about 9 percent so far this year. Germany's Dax index fell by 0.4 percent while Britain's FTSE 100 lost 0.5 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 percent, moving back toward a two-month low touched on Tuesday.
But Japan's Nikkei stock index erased early losses and ended up 0.4 percent as the yen fell against the dollar.
The gloomy tone in stocks markets had been set in the U.S. markets. The Dow Jones Industrial Average fell 1.2 percent on Wednesday, its biggest one-day fall since Feb. 11, though this only reversed Tuesday's 1.2 percent rise.
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"A slowdown in U.S. consumer spending is doubly concerning given how much the U.S. economy relies on consumers hitting the shops and spending their hard earned dollars," said Michael Hewson, chief market analyst at CMC Markets in London.
At the same time, an auction of 10-year U.S. Treasury bonds saw strong demand with the highest indirect bids on record, which can come from governments, fund managers and insurance companies.
U.S. 10-year yields fell 1 basis point to 1.72 percent. German 10-year yields, the benchmark for euro zone borrowing costs, hit a one-month low of 0.1 percent.
In currency markets, the dollar strengthened 0.2 against a basket or currencies and 0.3 percent against the yenafter an academic seen to be close to Bank of Japan Governor Haruhiko Kuroda said the BOJ was likely to expand its monetary stimulus soon.
Takatoshi Ito, a former senior finance ministry official, said the BOJ, which introduced negative rates earlier this year, could act in June or July.
This follows a series of warnings from Japanese Finance Minister Taro Aso that Tokyo would intervene to curb any excessive one-sided gains in the yen.
"With policy easing speculation gaining ground and the Finance Minister talking down the yen, it is clear they do not want a stronger currency," said Niels Christensen, FX strategist at Nordea.
The yen was last at 108.75 to the dollar, having touched an 18-month high of 105.55 on May 3.
The euro weakened 0.2 percent to $1.1406 and sterling fell a similar amount to $1.4413 before a Bank of England policy meeting and the release of new growth and inflation forecasts later on Thursday.
The British economy has shown signs of weakening recently, with money markets pricing in a chance of an interest rate cut by the end of the year, while economists polled by Reuters have said growth could be at risk if Britain votes to leave the European Union in a referendum in June.
Oil prices held on to most of Wednesday's sharp gains, unfazed by the gradual return of Canada's oil sands output. Brent crude was last down 5 cents a barrel at $47.56, having rise nearly $3 on Wednesday on a fall in U.S. crude inventories.
Copper prices pared earlier gains as the dollar found a firmer footing. The metal was last up 0.3 percent at $4,721 per tonne.
Investors were also watching Brazil, where the Senate was poised to suspend President Dilma Rousseff prior to putting her on trial for breaking budget laws.
The real was 0.1 percent stronger at 3.45 per dollar.
(Additional reporting by Lisa Twaronite in Tokyo, Jamie McGeever and Anirban Nag in London; Editing by Toby Chopra and Raissa Kasolowsky)