A second day of weak German data sent European markets into retreat on Tuesday with stocks, the euro and periphery euro zone government debt all knocked by the mounting evidence of an abrupt slowdown in the bloc's economic engine room.
A day after German industrial orders saw their biggest monthly drop since the height of the global financial crisis in 2009, its industrial output figures for August plunged by 4.0 percent, also the biggest fall in five years.
"Industrial production is currently going through a weak phase... but the current decline is exacerbated by holiday effects," Germany's Economy Ministry said in a statement.
"All in all, one should expect weak production for the third quarter as a whole."
By contrast, the mining sector was boosted as Rio Tinto (RIO.L) rose 5.2 percent after saying it rejected a merger approach from smaller rival Glencore Plc (GLEN.L) to create a $160 billion mining and trading giant in August.
Asian shares had made minor gains overnight but the weak data saw European bourses <0#.INDEXE> jolt lower, led by a 0.7 percent drop on Germany's Dax .GDAXI which has now lost 7.5 percent in the last three weeks.
London .FTSE, Paris .FCHI, Milan .FTMIB and Madrid .IBEX all took tumbles, while Italian, Spain, Portuguese and also French government bonds yields rose amid doubts about what a slowing Germany meant for their more fragile economies.
Germany's and the euro zone's renewed weakness is part of broader world wide picture. Apart from the United States, indicators of global growth have slipped sharply over the past few months.
Economists at Barclays highlighted on Tuesday that their global manufacturing index is at its lowest level since May and the IMF is expected to cut back its growth forecasts later.
"Over the summer, there has been quite an apparent divergence in the global growth story," said Kerry Craig, a global markets strategist at J.P. Morgan.
"What we are seeing is quite an ugly and uneven recovery. Growth in euro zone has stalled... and then you have to contrast that with what is going on in the U.S. where we saw the really strong jobs data on Friday."
YEN EFFECTS
The euro EUR= also weakened slightly after the German data, though with traders still looking for an excuse to take some profits on the dollar's .DXY recent surge, the dip was only minor.
At the same time, the dollar was struggling versus the yen after Japanese Prime Minister Shinzo Abe raised the negatives as well as positives of a weaker yen for his country's economy.
It had been a choppy session but the outcome was that after going as high as 109.25 yen, the dollar was back down at 108.62 yen as Asia trading started to tail off. [FRX/]
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was last up about 0.4 percent, after wobbling between positive and negative territory though the higher yen meant Tokyo's Nikkei .N225 ended the day firmly in the red.
The dollar's weakness helped, however, bolster recently slumping commodity prices.
Brent oil LCOc1 was steady in early London trading at $92.62 a barrel alongside growth-attuned copper CMCU3, while gold XAU= held above $1,200 an ounce. [GOL/][O/R][MET/L]
The Reserve Bank of Australia held its cash rate steady at 2.5 percent at its regular policy review on Tuesday, and said that its currency remains high by historical standards.
The Australian dollar erased earlier gains and slipped about 0.3 percent to $0.8738AUD=D4, moving back towards Friday's low of $0.8642 which was its weakest level since July 2010.
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