European and global financial markets have been riding high in recent weeks on hopes that European Central Bank plans due to be detailed in September can put a floor under Spain and Italy's debt troubles and prevent the euro from unravelling.
Such hopes are partly countering the effects of weak economic data, including figures on Tuesday that pointed to the euro zone sliding back towards recession, on top of earlier figures showing emerging economies such as China faltering.
In the U.S. an unexpected drop in a manufacturing gauge in New York state and lower-than-expected consumer prices added to the picture.
"There appears no end in sight in the near-term for an end to economic contraction in the fiscally challenged euro zone members," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi.
Global shares were down 0.2 per cent, thinned by the summer lull. Indexes in London, Paris and Frankfurt were all lower, following weakness in Asia and remaining on the back foot despite positive U.S. retail sales data on Tuesday.
U.S. stocks were also indicated lower, with S&P 500 futures down 0.14 per cent shortly before the opening of trade in New York.
"The weakening growth outlook is likely to lead to more aggressive monetary easing from the ECB, weakening the euro further ahead," Hardman added.
Brighter U.S. consumer data on Tuesday had lifted the market mood, but that was tempered in early Asian trading by concerns that it might prompt the U.S. Fed to put off another round of easing.
But Wednesday's figures showing U.S. inflation was slower than expected at 2.1 per cent, and other data showing manufacturing activity in New York state contracted in August for the first time since October 2011, were an instant antidote.
Thursday will see the euro zone report final July inflation figures. It is forecast to stay at 2.4 per cent, still well above the ECB's 2 per cent comfort zone and a potential brake on further ECB interest rate cuts.
Global shares are up over 3.2 per cent since the start of the month, but investors remain nervous while they wait to see if ECB action lives up to expectations.
ECB President Mario Draghi has said the bank will flesh out new bond buying plans to bring some stability back to strained euro zone bond markets early next month, driving hopes the bloc could start to right itself again in the second half of the year.
In line with the sell off in share markets, the euro was down 0.4 per cent at $1.22 74 at 1240 GMT.
The prices of German bonds - favoured by risk-averse investors - hit a six-week low. Spanish, Italian and Portuguese bonds were all up.
The backdrop for th at trend remains ECB bond purchase hopes. But the moves have also been aided by the current market lull. Bunds are down more than 150 ticks this week, and Wednesday's latest dip was cited by traders as triggering automatic selling.
Economists also believe Bank of England policymakers are considering more help for the British economy. All nine members of its Monetary Policy Committee voted to maintain the BoE's asset purchase target at the 375 billion pound level agreed in July, minutes showed, but some said there was a good case for more.
Tensions in the Middle East were also influencing markets, in particular worries that Israel could launch an attack on Iran in the coming months.
Brent crude futures slipped below their $114 a barrel three-month high after the United States disputed reports of an imminent move by Israel, saying it did not believe any decision had been made.
Gold edged back up, having dipped to a near two-week low on Tuesday.
Copyright @Thomson Reuters 2012