* World equity markets extend falls into seventh day
* Debt crisis sends euro zone back into recession
* Middle East tensions support oil prices, Brent hits $111 a barrel
* Yen sinks to 6-1/2-month low vs U.S. dollar, euro firms to $1.2760
By Ellen Freilich
NEW YORK, Nov 15 Major stock markets fell for a seventh day on Thursday, after data confirmed Europe's debt crisis has stalled economic growth in the region and on ongoing concern U.S. government budget issues may slow growth in the world's largest economy.
Brent crude oil prices rose toward $111 a barrel as fighting in the Gaza Strip sparked worries of an escalation that could ultimately disrupt oil supplies from the Middle East.
"The global economy faces some severe headwinds. Against that backdrop we see short-term de-risking of portfolios," said Abi Oladimeji, head of investment strategy at Thomas Miller Investment.
U.S. data on the jobs market and consumer price inflation and business activity in New York and Philadelphia had little market impact, partly because a rise in weekly jobless benefit claims figures for the week were distorted by the storm which hit the North East in late October.
A drop in the Philadelphia Federal Reserve's index of business activity in the U.S. mid-Atlantic region was also tied to the impact of hurricane Sandy which disrupted business in the area due to power outages and commuting problems for workers.
"U.S. stocks seem to be reacting to the apparent divide between the White House and the (Republican-dominated) House of Representatives," said Brian J. Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. "If President Obama insists on raising tax rates, that could scuttle any possible deal with the Republicans."
But Jacobsen observed that the parties "are just carving out their initial positions.
"Ultimately, the solution will be found in the middle, but it might take a lot of press conferences and public harrumphing to get there," he said.
"When the Bush-era tax cuts were extended in December 2010, it was a last minute deal that got things done," Jacobsen added. "That's probably what we'll see this year."
The Dow Jones industrial average was down 7.45 points, or 0.06 percent, at 12,563.50. The Standard & Poor's 500 Index was up 0.22 points, or 0.02 percent, at 1,355.71. The Nasdaq Composite Index was down 4.98 points, or 0.17 percent, at 2,841.83.
EUROPE BACK IN RECESSION
Economic growth Growth in Germany, Europe's largest economy, cooled to 0.2 percent over the July-September period compared with the previous three months, while data showed the wider 17-nation euro zone has slipped back into recession.
Economic output in the euro area fell 0.1 percent in the third quarter after falling 0.2 percent in the April to June period, making it the second recession since 2009.
"The double-dip is a fact," said Martin Van Vliet, an economist at ING Bank. "What you notice is that the recession in southern Europe is slowly creeping to other countries."
The FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,080.62 points, having fallen 1.0 percent on Wednesday, but actual trading volume was quite low. London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 were down around 0.5 to 0.9 percent.
A WORLD OF WORRIES
The MSCI world equity index was down 0.26 percent at 318.38 points and has now lost over 3.0 percent this month. MSCI's broadest index of Asia Pacific shares outside Japan fell 1.14 percent.
World stocks are now on course for a seventh successive day of losses, hit by the prospect of a slowdown in the giant U.S. economy if politicians cannot strike a deal to avoid the 'fiscal cliff' - a series of spending cuts and tax rises due to take effect early next year.
U.S. stocks fell more than 1.0 percent on Wednesday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a budget battle with Republicans in Congress.
In China, the unveiling of an older, conservative new leadership line-up for the next decade on Thursday also dented hopes that the government would take bold steps to deal with slowing growth in the world's second-biggest economy.
However, Johannes Reich, head of equity research and strategy at Bankhaus Metzler, said the current accommodative monetary policies from the world's major central banks should prevent a sharp retracement in share markets.
"It is going to be bumpy ride for equities but I do not see a major trend up or down," Reich said.
The benchmark U.S. Treasury 10-year note was down 1/32 on Thursday, leaving its yield at 1.60 percent.
The retreat from riskier assets also weighed on commodities, but not oil, which moved higher as Israeli warplanes bombed targets in and around Gaza city and Palestinian militants from Hamas fired a rocket that killed three Israelis.
Benchmark Brent crude rose $1.14 cents to $110.75 a barrel, having risen more than 1 percent on Wednesday. U.S. oil , though, fell 34 cents to $85.98/bbl.
PROSPECT OF JAPAN EASING
Bucking the gloom, Tokyo's Nikkei rose 1.9 percent as the boost given to exporters such as Toyota Motor Corp, Honda Motor Co and Canon Inc. from a weakening yen outweighed global growth concerns.
The yen has fallen sharply against the U.S. dollar and the euro since Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election for next month that the opposition Liberal Democratic Party, which has called for aggressive monetary easing to support growth, is expected to win.
The yen hit a 6-1/2-month low against the dollar at 81.20 yen and fell to 103.60 against the euro.
The single currency, which generally moves in line with riskier assets, inched up 0.1 percent to $1.2760, recovering from Tuesday's two-month low of $1.2661.
Some analysts said investors were wary of selling the euro heavily in case policymakers surprised markets with decisive action to tackle the euro zone debt crisis.
However, the single currency is seen as vulnerable to concerns about slowing growth and uncertainty over aid for Greece and Spain.