* Euro, shares turn lower as business activity slows * PMI data raises question over euro zone recovery * Rising oil prices hurt yen By Richard Hubbard LONDON, Feb 22 (Reuters) - The euro and European shares edged lower on Wednesday after economic data suggested the euro zone may slide back into recession, hurting the global economic outlook, while concerns about the sustainability of the latest Greek bailout deal also weighed. The euro zone's key service sector shrank unexpectedly in February while growth in Germany's manufacturing and services sectors also slowed when compared to the previous month, according to new business surveys of activity. "The (euro zone) economy remains stuck in low gear. It's indicative of a flatlining economy, maybe slightly contracting rather than a major slowdown," Peter Dixon, global equities economist at Commerzbank said. The single currency also came under pressure as the flash euro zone Purchasing Manager's Index fell more than expected to 49.4, below the 50 level that signifies contraction. The euro traded around $1.3220, down about 0.1 percent. The Purchasing Manager's Indexes (PMIs) have clouded recent optimism about the resilience of Europe's economy to the region's debt crisis although a separate survey showed France's manufacturing sector managed a marginal but unexpected return to growth in the month. "Although business conditions are showing signs of stabilising so far this year, which represents a marked improvement on the widespread deepening gloom seen late last year, the euro zone is by no means out of the woods," said Chris Williamson, the chief economist of the data compiler Markit. "Demand needs to improve considerably in coming months before we can safely say that the region will return to anything like reasonable growth." The data sent the broad FTSEurofirst index of top European companies down about 0.5 percent to 1,080.22 points after it started the day little changed. Safe-haven German government bond futures also reversed early losses to hit the day's highs on Wednesday in the wake of data with March Bund futures rising 31 ticks to 138.27. Growing worries among investors that Greece will struggle to implement the tough austerity required under its latest bailout deal agreed on Tuesday also remained in investors' minds. CHINA FEELS EURO ZONE EFFECT An earlier preliminary survey of China's industrial activity, showed the overall manufacturing sector contracting for a four-straight month although the HSBC flash PMI rose in February to 49.7 from 48.8 in January. But a new export orders sub-index of the HSBC survey dropped to 47.4 -- the lowest in eight months -- from 50.4 in January as the European debt crisis cast a shadow over Chinese exports. Asian shares eked out modest gains after the China manufacturing PMI data but the European numbers reversed the trend sending the MSCI global equity index down about 0.2 percent to 329.81 China's economic growth is widely seen slowing down in January to March for its fifth consecutive quarter. Economists expect full-year growth to slip below 9 percent for the first time in a decade. Brent crude oil edged down towards $121 a barrel, rettreating from a nine-month high, as the weaker Chinese manufacturing data and worries about the euro zone debt crisis cast doubt on the global economic outlook and the prospects for fuel demand. The Japanese currency was also weakening as the rising price of oil added to the impact of an easier monetary policy stance by the Bank of Japan to be send it above 80 yen to the dollar for the first time since July, 2011. (Editing by Anna Willard)

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