* Euro zone inflation drops to 26-month low of 1.6 pct y/y

* Toyota to suspend production in Japan for 11 days

* Euro zone services survey hits lowest in 10-year history

* China risks protest, riots as unemployment rises - report (For more on the crisis, click [nCRISIS])

By Will Waterman

LONDON, Jan 6 (Reuters) - Dire economic data underlined the severity of recession in Europe on Tuesday, while Toyota Motor Corp (7203.T: Quote, Profile, Research) said it would halt all production in Japan in response to plunging demand.

With the global downturn hitting automakers particularly hard, Toyota, the world's biggest, said it would shut all its factories in Japan for 11 days over February and March.

And as a further indication of how the crisis that began with bad housing loans in the U.S. has reached all parts of the world, a state-run Chinese magazine warned that rising social unrest would follow.

In Europe a sharper than expected fall in euro zone inflation to a 26-month low of 1.6 percent in December knocked back the euro and further supported expectations for a European Central Bank (ECB) rate cut next week. [ID:nL6582088]