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NEW YORK (Reuters) - Major stock markets fell for a second day and the euro slid to a six-week low against the U.S. dollar on Thursday after data showed weak economic growth in both Europe and the United States.
Oil prices also slumped, with Brent crude falling to a three-week low, after a survey of euro zone business conditions dealt a blow to hopes the region might soon emerge from recession.
In contrast, the dollar rose to a 5-1/2-month high against a basket of currencies, a day after minutes from the Federal Reserve's last meeting bolstered expectations the central bank may pull back from its bond-buying program sooner rather than later.
U.S. Treasuries prices also rose as renewed worries about Europe's economic recovery and sluggish domestic jobs and business conditions led investors to buy less risky government debt.
In the United States, a raft of economic data, from claims for jobless aid to factory activity and consumer price inflation, pointed to slow economic growth and supported the argument for the Federal Reserve to maintain its monetary stimulus.
In Europe, business activity indexes dealt a blow to hopes the euro zone might emerge from recession soon, showing the downturn across the region's businesses unexpectedly grew worse this month.
"The PMI numbers out of Europe were really a blow to the market," said Jack De Gan, chief investment officer at Harbor Advisory in Portsmouth, New Hampshire. "The market was expecting signs that recovery is still there, but the numbers just highlighted that the euro-zone problem is still persistent."
By market close in New York, the MSCI world equity index was down 1.3 percent, its biggest daily loss so far this year.
U.S. stocks fell for a second straight day and the S&P 500 posted its worst two-day loss since November after reports cast doubt over the health of the U.S. and euro-zone economies.
But a late-day rally helped stocks erase some of their losses, with most of the pullback concentrated in the technology-heavy Nasdaq. The move suggested investors were still willing to buy on dips even after the sharp losses in the last session.
After the regular trading session on Wall Street, shares of Hewlett-Packard Co jumped more than 7 percent from their close at $16.70. The world's No. 1 PC maker reported quarterly results that beat Wall Street expectations and also gave an outlook that came in higher than Wall Street expected.
The Dow Jones industrial average closed down 46.92 points, or 0.34 percent, at 13,880.62. The Standard & Poor's 500 Index fell 9.53 points, or 0.63 percent, at 1,502.42. The Nasdaq Composite Index was down 32.92 points, or 1.04 percent, at 3,131.49.
The Fed is currently buying $85 billion in bonds per month and has said it would keep up the purchases until the labour market outlook improves substantially, although officials are increasingly divided over the wisdom of that course.
"The economy is in a holding pattern. It's not going to strengthen sufficiently to justify an end of the current program," said Millan Mulraine, senior economist at TD Securities in New York.
On Wednesday, minutes from the Federal Reserve's most recent meeting had suggested the central bank may slow or stop buying bonds sooner than expected, resulting in U.S. stocks suffering their biggest one-day decline since November 14.
In Europe, shares closed sharply lower after weak economic data and ahead of this weekend's Italian elections, which may call into question the country's economic reform program.
Europe's Eurofirst 300 index shed 1.5 percent to close at 1,151.61. The blue chip Euro STOXX 50 index index fell 2.3 percent to 2,580,20, a new low for 2013.
The euro fell to a six-week low against the dollar and a three-week trough against the yen, pressured by disappointing euro zone economic data and by uncertainty ahead of Italy's election.
The downturn in the euro zone worsened unexpectedly this month, especially in France, surveys showed on Thursday, keeping alive chances of an interest rate cut by the European Central Bank in coming months.
Concerns that a fragmented parliament after Italy's national election could trigger a sell-off in the peripheral euro zone bond market also weighed on the euro.
Nichi Vendola, leader of the Left Ecology Freedom party (SEL) and front runner in polls for Italy's election, said the country should seek revisions of European Union budget rules.
That raised fears that Vendola will push a centre-left government too far to the left and prevent a coalition agreement with outgoing Prime Minister Mario Monti, which is seen as the most market-friendly election outcome.
The euro fell to $1.3160 on Reuters data, its lowest since January 10, and well below a 15-month peak of $1.3711 reached on February 1. The euro last traded at $1.3182, down 0.7 percent.
Against the yen, the euro fell to 122.23 yen, its weakest since late January. It was last at 122.78, down 1.2 percent.
The dollar index, which measures the greenback versus a basket of currencies, rose to a session peak of 81.508, the highest since early September, before easing slightly to trade at 81.397, up 0.4 percent on the day.
"There will be less dilution of the value of the U.S. dollar, especially relative to the yen and maybe sterling," said Tatjana Michel, director of currency analysis at Charles Schwab in San Francisco.
Prices on 30-year U.S. Treasury bonds rose more than one point as renewed economic worries intensified selling in stocks and risky assets and purchases of safe-haven bonds.
Benchmark 10-year Treasury notes were 8/32 higher in price to yield 1.983 percent, down 2.7 basis points from Wednesday but still well within the 1.93 percent to 2.06 percent range that has held sway for over three weeks.
Brent April crude fell $2.07, or 1.79 percent, to settle at $113.53 a barrel, having traded from $113.32 to $115.31.
U.S. April crude fell $2.25 to $92.96 a barrel.
Reporting By Angela Moon; Editing by Leslie Adler, Clive McKeef and Dan Grebler