LONDON (Reuters) - A tentative rebound in global stocks spluttered on Wednesday while euro zone government bond yields hit a three-year low as gloomy economic news highlighted the case for more aggressive interest rate cuts in Europe this week.
The euro stayed on the backfoot and oil held near a 3-1/2 year low a day before the European Central Bank, Bank of England and Sweden's Riksbank are all widely expected to cut borrowing costs.
Supporting those expectations, economic reports on Wednesday showed the euro zone's services economy fell deeper into recession in November than initially thought and inflationary pressures eased.
"This is a horrible survey across the board, showing that the euro zone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets," said Howard Archer, economist at IHS Global Insight.
Australia's economy grew at its slowest pace in eight years in the third quarter as gathering recession abroad and evaporating equity wealth at home curbed spending by consumers and businesses.
Central banks worldwide are cutting rates to fight recession. They are also considering more measures to stabilize financial markets and restore battered consumer and investor confidence, including help for struggling U.S. auto makers.
The FTSEurofirst 300 index of top European shares fell 1.5 percent in early trade with Britain's FTSE 100 index down 0.9 percent and Germany's DAX shedding 1.7 percent.
MSCI world equity index eased 0.4 percent.
"The markets are still looking very tender," said Justin Urquhart Stewart, investment director at Seven Investment Management.
"Markets are not focusing on any of the good news and the good news is rates are being cut, commodity pries are coming down, stimulus packages are being put together and banks are being supported. But the market's feeling very depressed."
Japan's Nikkei managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday, but MSCI's measure of other Asian stock markets put on just 0.2 percent.
EURO PRESSURED AS ECB CUT EYED
Also under pressure, the euro fell 0.7 percent against the dollar on the day to $1.2626 and was also weaker against the yen, while the dollar climbed 0.6 percent against a basket of major currencies.
But demand for less risky assets continued to mount, helping to push government bond yields lower.
The 10-year euro zone government bond yield plumbed a low of 3.004 percent -- a level last seen in September 2005, while the benchmark 10-year yield for U.S. Treasuries was at 2.727 percent, not far off a five-decade low of around 2.651 percent set on Monday.
"Economic indicators are plunging like there is no tomorrow and central banks are gearing up for significant easing," said Elwin de Groot, a strategist at Rabobank, noting 100 basis point rate cuts from Australia and Thailand this week.
The ECB meets on Thursday and most economists expect an interest rate cut of 50 basis points, while the Bank of England is forecast to cut rates by an aggressive 100 basis points.
Sweden's central bank is likely to slash rates by a record 100 basis points, or possibly more, on Thursday when it announces the result of its meeting, which it brought forward by almost two weeks.
Meanwhile, U.S. crude edged up 41 cents to $47.37 but was within striking distance of Tuesday's trough of $46.82 -- a low last seen in May 2005.
Gold slipped to $774.80 an ounce, down $6.70 from New York's notional close on the back of a broadly firmer dollar.
(Additional reporting by Rebekah Curtis and Kirsten Donovan in LONDON, Rafael Nam in HONG KONG)
