By Patrick Graham
LONDON (Reuters) - European stock markets fell for a second day on Wednesday, pushing world share indexes back towards their lowest in six months as concern mounts over the strength of global economic growth.
Forecasts from the International Monetary Fund on Tuesday added to the sense that the world economy is still struggling to break out of the cycle of lower growth and financial trauma it has been stuck in since 2008.
Stock markets have been able largely to ignore those harder realities in a three-year rally based on the flood of new dollars printed by the U.S. Federal Reserve.
But with the Fed ready to end its bond-buying this month, and signs from the Japanese, Chinese and European economies less than optimistic, prices of stocks and other more growth-dependent assets have fallen steadily since mid-August.
"The mood is darkening rapidly," said Kit Juckes, a currency strategist at Societe Generale in London.
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"I'm not sure we should read too much into spot forecasts, but the suffocation of the IMF's optimism is pretty striking. Within the G7, 2015 forecasts have been cut in Germany, France, Italy and Japan."
The FTSE Eurofirst index of 300 leading European companies was down 0.3 percent at 1,325.43, having fallen as much as half a percent on opening. Japan's Nikkei index ended 1.2 percent lower while Asian shares outside Japan fell by just under a full percentage point.
That left the MSCI index of world shares close to its lowest since mid-April. Oil prices fell to their lowest in more than two years.
"It's concerns over global growth that are weighing on the equity markets, particularly prior to earnings season," James Butterfill, global equity strategist at Coutts, said. "If you look at Europe, there's very weak macroeconomic data, there's weak data coming out of China as well, so it does suggest slower growth."
China's markets bucked the trend as they returned from a week-long break, with shares in Shanghai up 0.5 percent and expectations of further stimulus from Beijing offsetting a private survey of China's services sector showing growth eased a touch in September.
OIL LOW
Extending a three-month-long decline, Brent oil dropped $1.18 to $90.93 a barrel while U.S. crude tumbled $1.07 to $87.78. The protracted slide should be a windfall for consumer spending power, but is also a powerful force for disinflation in much of the developed world.
That has been a boon for sovereign bonds as investors wager the outlook for slowing inflation could put off the day when U.S. interest rates might rise.
"There are a lot of worries about the macro picture, especially in the euro zone, and that is benefiting the bond market," said Jean-Francois Robin, head of strategy at Natixis.
"We are back to a traditional correlation when the equity market is going down, the bond market is going up."
Another question, ahead of minutes from the Fed's latest meeting later on Wednesday, is whether the scale of the dollar's gains since May will serve to slow the Fed down when it comes to raising rates over the next couple of years.
The U.S. currency is more than 10 percent higher against the euro since early May and around 8.5 percent higher against a basket of currencies. That should dampen prices of imports and U.S. inflation overall while potentially making U.S. policymakers uncomfortable about boosting the dollar further by raising interest rates.
The dollar index is down almost 1 percent this week although it looked steadier in early trade in Europe on Wednesday.
Against the euro it hovered at $1.2635, having fallen to as low as $1.2683 overnight.
(Additional reporting by John Geddie, Sudip Kar-Gupta and Alistair Smout; Editing by Susan Fenton)