By Marc Jones
LONDON (Reuters) - World stock markets retreated on Thursday after days of gains following a heavy overnight tumble by oil and more uncertain news from China and Japan to Brazil and New Zealand.
European stocks snapped a three-day run of gains with falls of 1 percent, following a difficult session in Asia, and Wall Street looked set for a subdued start after Apple's new gadgets failed to excite investors on Wednesday.
Major currencies and bonds also lacked sparkle as investors continue to grapple with whether the recent jitters in China and other world markets would prevent the Federal Reserve from raising U.S. interest rates next week.
The latest policy responses to signs of stuttering global growth came from the Reserve Bank of New Zealand (RBNZ) and the European Central Bank (ECB).
The former cut its benchmark rate by 25 basis points and signalled more would follow if China's economy slows further, sending the Kiwi dollar sliding towards a six-year low.
ECB chief economist Peter Praet also stressed that the bank was willing to expand its already massive stimulus programme if needed.
"On account of the external environment, risks to both euro area activity and inflation are on the downside, and these risks have intensified" since the ECB last forecasts were put together in mid-August, he said.
Adding to the deflation nerves, the United Nations food agency said world food prices saw their fastest fall since 2008 last month.
Risks around Chinese growth had already been highlighted as producer prices in China fell for the 42nd straight month and car sales dropped highlighting the strains on the world's No. 2 economy.
Japan's main gauge of capital spending also unexpectedly fell for a second straight month, data from July showed, highlighting its economic struggles.
That helped send Tokyo's Nikkei down 2.7 percent. The index had leapt almost 8 percent on Wednesday on hopes Japan would expand its own huge stimulus programme.
Chinese stocks ended down also, falling 1.2 percent and 1.4 percent respectively. Hong Kong and Australian stocks both lost more than 2 percent.
"What is China going to do? That is the biggest unknown for people at the moment," Charles Schwab managing director of Trading and Derivatives, Randy Frederick, said.
OIL SPILL
The emerging market woes were not confined to Asia.
Standard & Poor's stripped Brazil of its investment-grade credit rating on Wednesday, further hampering President Dilma Rousseff's efforts to regain market trust and pull Latin America's largest economy from recession.
That put Brazil stocks on course for big falls and financial markets are betting that Russia, South Africa, Turkey and Colombia could all be next in line for "junk" debt status.
The gloomy mood saw European shares extend early losses to be down more than 1.6 percent before the start of U.S. trading.
Britain's pound jumped to a two-week high however after the Bank of England - one of the few central banks expected to raise rates any time soon - said it was too soon to decide if turmoil in markets sparked by China will affect Britain much.
Germany's economy minister Sigmar Gabriel said his country remained on a solid growth path also, helping ease worries about the impact on Europe's largest economy, which has faced recent euro zone jitters over Greece.
Asia's strains though meant commodity markets were back under pressure after something of a rebound.
Brent crude oil, which has halved in price in little over a year, was hovering at $47.47 per barrel and WTI U.S. crude was at $44.17 a barrel, steadying after a nearly 4-percent slump late on Wednesday.
Europe's bond investors saw the jitters and signs that the ECB will expand its stimulus programme as a reason to stock up on German Bunds, while gold, another traditional favourite for the risk-wary investor, also nudged up.
While the RBNZ rate cut was widely anticipated, the central bank also said a further fall by the New Zealand dollar was "appropriate", sending the kiwi buckling.
The currency last fetched $0.6278, moving back towards a 6-year low of $0.6200 struck late in August.
Brazil's rating downgrade sent its real tumbling to the lowest since 2002 and the Turkish lira hit a new record low on persistent domestic political uncertainty.
(Editing by Louise Ireland)
