Private-sector growth in the eurozone ground to a halt this month and China's factory sector contracted for the first time in a year, surveys showed on Thursday, deepening evidence of a global slowdown.
Hopes that the US economy will snap out of its recent slowdown were supported by a rebound in manufacturing in the country's mid-Atlantic region, although an unexpected rise in jobless claims underscored how weak the labour market remains.
The surveys were published just before European leaders met to hash out a second bailout of Greece and to try to allay fears a possible debt default by Athens could spread havoc.
Markit's Eurozone Purchasing Managers' Indexes showed growth in the 17-nation bloc's factory sector came to a standstill in July while its dominant service sector grew at its slowest rate in 22 months.
"The large fall in the flash eurozone PMI in July provides further signs that the debt crisis may be starting to take a heavy toll on the economic recovery in the region," said Ben May at Capital Economics. The debt crisis has pushed Greece, Ireland and Portugal into bailouts and raised fears in recent weeks that it will engulf Italy and Spain as well.
Eurozone leaders were set to give their financial rescue fund sweeping new powers to prevent contagion and help Greece overcome its debt crisis, according to the draft conclusions of an emergency summit on Thursday.
The flash services PMI sank to 51.4 this month from 53.7 in June, its lowest since September 2009 and far below expectations for 53.0. It has, however, been above the 50 mark that divides growth from contraction for nearly two years.
The flash manufacturing PMI fell more than expected to 50.4 from 52.0 in June, its lowest reading since September 2009.
"There is no doubt that the freefall in the PMIs of the last three months comes as a negative surprise. We believe that external factors remain predominant, in particular the ongoing softening in the global factory cycle as shown by further signs of weakness in China ...," said Marco Valli at UniCredit. China's factory sector contracted in July for the first time in a year and at its fastest pace since March 2009 as monetary policy tightening and slack global demand weighed on the economy, according to HSBC'S Chinese PMI.
Output in the eurozone's manufacturing sector, which drove a large part of the recovery in the bloc, shrank for the first time in two years, with the index falling to 49.5 from 52.5, its lowest since July 2009.
Factories also saw new orders falling for the second month running, with the index sliding to 47.6 from 49.8, its lowest reading since June 2009.
An earlier release from Germany, Europe's largest economy, showed its composite PMI staging the biggest one-month fall since late 2008, slumping to 52.2 from June's 56.3.
The picture was little better in France where the composite index fell to a 23-month low of 52.8 from June's 54.9.
The glum indexes meant the eurozone composite PMI, a broader measure of the private sector which combines the services and manufacturing data, collapsed to 50.8 from 53.3, just in positive territory and well below forecasts for 52.6.
The composite index is often used as a guide to growth and Markit said if the PMIs remained at current levels there would be no economic growth in the third quarter, and without the tepid growth seen in Germany and France the eurozone index would have been negative.
Economists polled by Reuters this month predicted eurozone growth of 0.4 percent this quarter.
The European Central Bank raised interest rates this month and signalled another increase is likely later this year. In one bright spot in Thursday's eurozone surveys, businesses continued to take on new workers, and at a slightly faster rate than in June.
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