(Reuters) - The euro and shares fell on Thursday after data showed the euro zone's two biggest economies shrank even more than expected late last year, throwing a first quarter recovery into doubt. The German economy contracted 0.6 percent in the final quarter of 2012, marking its worst performance since the global financial crisis was raging in 2009. Exports, normally the motor of its economy, did most of the damage. Overall the euro zone's 17-country economy shrank 0.6 percent, with France's 0.3 percent fall slightly worse than forecast. Germany is expected to rebound but the figures suggest the bloc overall could remain in recession in the first quarter of this year, despite a jump in market sentiment this year as fears that the currency bloc could fall apart faded. The data pushed the euro down more than 0.9 percent to a session low $1.3328 by 1030 GMT. "It is kind of disappointing that Germany, which had shown so much resilience, is now showing signs of suffering from the debt crisis," said Anita Paluch, sales trader at Gekko Capital Markets. Stock markets had managed to turn around initial falls but were back down by mid-morning. The pan-European FTSEurofirst 300 index was down 0.4 percent at 1162.58. Frankfurt's DAX and Milan's fell 0.9 percent while Paris's CAC-40 and London's FTSE were 0.4 percent lower. German bonds rose as demand for traditional safe-haven assets returned. Bund futures were 45 ticks higher on the day at 142.51, having extended gains after Italian GDP figures also came in weak. Italy, which holds parliamentary elections in just over a week, suffered its sixth successive quarterly fall in GDP - this time a sharp 0.9 percent - putting it into a longer recession than it suffered during the crisis of 2008/2009. YEN STEADIES Data from the European Central Bank also weighed on confidence as one of its quarterly surveys showed professional forecasters now see no growth in the euro zone this year, having last quarter expected a modest 0.3 percent rise. The pain is not just in Europe. Japan - under pressure over its aggressive monetary and fiscal policies which are driving down the yen - reported earlier on Thursday that its GDP shrank 0.1 percent in the fourth quarter, leaving it in recession and crushing expectations of a modest return to growth. The yen steadied after swinging wildly this week following a muddled warning on currencies from the G7 nations on Tuesday. It slipped against the dollar but gained on the euro after the Bank of Japan announced, as expected, that it would keep the pace of asset purchases and interest rates unchanged. The dollar traded at 93.51 yen, up 0.1 percent and off its recent lows of 92.83 yen but still well below a 33-month high of 94.46 set on Monday. The euro was down 0.8 percent at 124.60 yen. The yen's recent rapid depreciation, after years of sharp appreciation, has drawn some criticism from overseas, with rhetoric heating up before a Group of 20 nations meeting on Friday and Saturday in Moscow. "Usually the BOJ doing nothing causes a bit of disappointment, but since there are concerns about the flak Japan might get at the G20 this weekend for the weakening yen, standing pat will actually be a relief to the market," said Masayuki Doshida, senior market analyst at Rakuten Securities. IRAN TENSIONS Oil prices rose as fresh tensions over Iran's nuclear programme revived global supply concerns and offset the GDP data from the euro zone. Crude futures prices had dropped after the German and French data but changed direction shortly afterwards when the United Nations nuclear watchdog said it had again failed to clinch a deal in talks with Iran on investigating its nuclear programme. Brent crude was up 28 cents to $118.17 by 1010 GMT, U.S. crude was up 27 cents at $97.28. "News that the IAEA (International Atomic Energy Agency) and Iran failed to reach a deal created a rebound in prices after an initial drop following the GDP data that was weaker than expected," Olivier Jakob, an analyst at Petromatrix, said. Markets in China and Taiwan remain shut for the Lunar New Year holiday but Hong Kong resumed trading on Thursday. Metals markets were quieter as a result of the thin Asian trading. Copper hit a 4-month high of $8,346 a tonne on February 4, but has since struggled to find momentum with the Shanghai Futures Exchange closed this week. Gold regained some strength, steadying at $1,642.50 an ounce as recent losses started to draw buying interest.

Source